2005 Recap

Ah, the usual pundit’s retrospective at the end of the year. Here’s my take on the top 10 most significant developments in 2005 for the cleantech industry, in the usual descending Letterman format:

10. The Energy Policy Act. Sure, it’s a dog’s breakfast of incoherent and often contradicting provisions. And, it’s the most painfully arduous and boring reading imaginable. Wikipedia Summary of EPAct. But, the EPAct will ultimately have numerous important ramifications on the cleantech sector. Biofuels mandates, extensions of the renewables PTC, accelerated tax depreciation, and gobs of grant pork. It will take years to sort it all out and see the effects trickle out into the market, but the aggregate impact will be significant. Unfortunately, not as significantly helpful as a well-thought-out energy policy would be, but alas.

9. Utility CEOs “getting” climate change. The CEOs of Duke Energy (Paul Anderson) and Cinergy (Jim Rogers) made news earlier this year when they took public stands in support of a clear government policy to address the growing concern of global climate change. (These two CEOs also made news by agreeing to merge their respective companies. Coincidence?) Clearly, most of the rest of the utility industry is scared to death of the climate change issue, as they are amongst the biggest contributors of greenhouse gas emissions. However, the fact that two prominent CEOs broke ranks suggests that the tide may be turning, albeit sooooooo slowly. Board resolutions on climate change by serious institutional investors are also helpfully putting pressure on the issue. Once a majority of utilities embrace the need to do something about climate change, something material will finally happen in the U.S. on this critical front.

8. The “Peak Oil” debate. An increasing number of observers are projecting that the peak of Saudi oil production (and hence the peak of conventional oil production) will occur in a rapidly approaching timeframe — by some estimates, within the next 10 years. Perhaps the most eloquent and credible of these observers is the oil/gas investment banker (and adviser to the Bush Administration) Matt Simmons, whose 2005 book Twilight in the Desert has received considerable notice. Twilight in the Desert. Personally, I believe the so-called “peak oil” debate is framed incorrectly in some important aspects, but its key point — that oil production as we now know it has a finite remaining duration — holds a lot of validity. And, the troubling implications of this conclusion have captured the imagination (fears, actually) of many influential people, with significant incipient benefit to those of us in the cleantech community.

7. $60 oil, $3 gasoline, $10 natural gas. High energy prices piss people off — and get them to take notice. “How can I cut my energy bills?” “What can I do to reduce my driving?” “Should I buy a hybrid?” The pocketbook can drive powerful changes in behavior, which should in the long-run have major environmental benefit. High energy prices also make economic room for new clean technologies, as well as provide impetus for further R&D and proactive public policy. For these reasons, let’s hope these high energy prices stay with us.

6. Katrina (and Rita). Hurricanes have been happening for millenia. Only now, it seems like there are more of them, and stronger ones. Hmmmm, could it have anything to do with climate change? Not provable, but worth considering — and many people are now beginning to connect the dots. Katrina was a truly dark tragedy for the U.S. on many levels, but perhaps something good can come from it if mass public thinking about environmental matters has been shaped positively.

5. Wal-Mart goes green. Everyone’s favorite whipping boy, Wal-Mart made a splash in October by declaring serious environmental commitments: 100% supplied by renewable energy, zero environmental waste, all products environmentally sustainable. These lofty goals come from a major policy statement on Wal-Mart’s future in the 21st Century by CEO Lee Scott. Wal-Mart’s 21st Century Leadership Speech. Being the commercial behemoth that it is, when Wal-Mart throws its weight around, the rest of the economy listens. If Wal-Mart is sincere about these environmental goals, and can light a fire under its entire supply chain to drive them to help Wal-Mart meet its goals, big things are afoot.

4. GE’s Ecomagination initiative. In the summer, GE’s CEO Jeff Immelt announced that products/services addressing environmental concerns would become a major platform and organizing theme for the company’s growth.Jeff Immelt on Ecomagination. This is a seismic shift from a company with unparalleled respect in and impact on the global industrial marketplace. GE probably figured that, if it can make a killing in the wind turbine market, there are lots of other opportunities to be found in cleantech. Good for them. Make it happen. If anyone can, GE can.

3. BP doubles down on renewables. As noted recently, BP is increasing its commitment to renewables by pledging to invest nearly $2 billion in the coming years on a variety of wind, solar and hydrogen initiatives. BP will form a new business unit called BP Alternative Energy to hold these initiatives, making more true the company’s tagline “Beyond Petroleum”. BP Alternative Energy Announcement.

2. Kyoto Protocol implementation. True, the U.S. stayed out of the Kyoto treaty. Nevertheless, Kyoto did go into effect early in 2005, and the signatories around the world are now “officially” (whatever that means) bound to its provisions. Accordingly, a robust carbon trading market is now beginning to emerge, especially in Europe. As carbon trading takes off, it will spur entrepreneurial developers to accelerate adoption of clean technologies for cost-effectively capturing trading value, while reducing carbon emissions. Somehow, some way, someday, the U.S. will get into the game too.

…and finally, the most important thing to happen to the cleantech sector in 2005…

1. The launching of Cleantechblog. Surely, this new forum for discussion will rapidly revolutionize the energy and environmental sectors! Kidding aside, congratulations and thanks to Neal Dikeman for his vision and leadership in launching this site this past summer. I appreciate the opportunity to contribute.

All in all, not a bad year for cleantech, but not good enough for my tastes. We still don’t have a sane energy policy that discourages pollution and promotes cost-effective efficiency and clean supply options, by eliminating egregious subsidies and protective barriers on mature segments of the energy sector and instead structuring market rules with appropriate pricing signals that reflect competitive forces while internalizing the economic costs of emissions and security risks associated with fossil fuel use. We still have enormous apathy by the American public on energy and environmental matters, and opposition by most consumers and many of the major energy companies towards anything but a “cheap energy” strategy — emissions be damned. We still don’t have enough private investment capital flowing to the sector — in part because we still haven’t had a big success story in cleantech like Microsoft or Dell.

While we’re moving in the right direction, let’s hope for better in 2006. Happy holidays everyone.

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