By Sanford J. Selman
In its majority opinion of January 21, 2010 (Citizens United v. Federal Election Commission), the US Supreme Court overturned decades-old rules prohibiting unlimited spending by corporations and unions on election advertising. This ruling is certain to have a far reaching impact as it gives complete freedom to corporate interests to use their considerable financial strength to influence voter opinions of political candidates and sets the stage for a rightward shift in US public policy.
The potential impact on the US cleantech sector is clear – the prospects for advancement of federal carbon legislation (i.e. cap-and-trade) or any other government-led clean energy initiative (e.g. renewable energy mandates) have just gotten much worse. Most negatively impacted by the passage of such rules would be energy companies and coal-fired utilities whose sheer size dwarfs that of their clean energy counterparts. With billions of dollars invested in existing fixed assets, these enormous enterprises can be expected to take an active role in future elections now that Citizens United has freed their hands to help their favored candidates win election.
But there are many potential losers.
For starters, failure to develop the US clean energy sector results in a loss of US jobs both in the manufacture of this equipment as well as construction and operation of the power plants and related systems. A 2009 report from the Pew Charitable Trusts noted that clean energy jobs in the US grew at an annual rate of 9.1 percent from 1998 to 2007 as compared to 3.7 percent annual growth for all US jobs over the same period. While many countries in Europe and Asia are looking to cleantech to drive jobs growth, comparatively weaker support for cleantech in the US could slow job growth in this historically strong sector.
Second, there is a trade balance issue. A recent front-page New York Times article (January 31, 2010) suggested that the US could trade its dependence on imported Mideast oil for dependence on imported Chinese wind turbines, solar panels and other energy-related hardware. Today, four companies out of each of the five largest wind turbine and solar cell manufacturers in the world are based outside the US. The rapid development of China’s battery and electric vehicle sectors, driven by central government policy, is impressive. Japan and Korea are likewise vying for leadership in battery technology. Citizens United will cause the US to fall further behind in key cleantech sectors where it once held dominance.
Third, consumers lose because we are less likely to have access to the fullest possible range of choices when it comes to purchasing and consuming energy.
And finally, the environment ends up losing since it will be impossible for the US to bring its considerable carbon footprint under control absent strong government leadership.
Implications for cleantech investment, which reached surpassed $5.5 billion globally even in a dismal 2009, are also significant. According to the Cleantech Group, North American venture funds accounted for almost two-thirds of global cleantech investment activity in 2009 – down about 10 percentage points from 2008. And increasingly, this money is finding its way to companies based outside the US. Chinese companies accounted for 72% of global cleantech IPOs in 2009 and Chinese cleantech M&A activity reached an historic high in 2009. Both statistics demonstrate the intense growth of the Chinese cleantech sector.
Cleantech investors’ US strategy will, by default, be forced to focus on sectors where economics are the primary driver and government support mechanisms are relatively less important. These sectors include energy efficiency and green building technologies, smart grid and distribution automation, water conservation and treatment, resource-efficient manufacturing and material technologies, and recycling and waste reduction.
Due to the “separation of powers” mandated by the US Constitution, there is no easy way to undo Citizens United although Democrats are hard at work drafting legislation to restrain its impact. Notably, President Obama took a swipe at the decision during his recent State of the Union address – a rare event by a sitting President. While the complexion of the US Congress won’t change overnight, Citizens United deals a blow to the US cleantech sector with potentially far reaching implications.
Sandy Selman is a longtime cleantech investor and the Managing Director of Asia West LLC.