If Jim Cramer and John Doerr are not Investing in Clean Tech Who Will?


(B) During the last week of November, the exuberant Jim Cramer from CNBC held a Green Investment Week. But paradoxically, investing for profits in Green does not assume investing in the emerging providers of the Green economy for Jim. “I hope it’s the soul-crushing revelation that saving the environment and making money in stocks to augment your paycheck are incompatible goals in this particular market”. To make the point even clearer: “I want you to forget the wind-power clean energy” Cramer suggested to his viewers. “That is a money loser. So is solar”.

So what did Jim Cramer recommend? First, to sell all pure cleantech players such as First Solar (FSLR) or EnerNOC (ENOC), and investing in companies such as Baldor Electric (BEZ), maker of energy-efficient industrial motors, CSX (CSX), a railroad company, Ameresco (AMRC), a provider of building energy efficient systems, and Clean Harbors (CLH), the largest operator of hazardous waste disposal.

Last month while announcing the hiring of Mary Meeker as the new high profile Kleiner Perkins Caufield & Byers (KPCB) partner, John Doerr sent some mixed messages about his future investments in cleantech: “We still believe there are enormous opportunities in green technologies” he said, “there will be bigger than billion-dollar IPOs in the next 12-to-18 months. But what’s going on on the Internet is tremendously exciting too. We can walk and chew gum at the same time.”

KPCB’s cleantech portfolio includes a range of large bets like Tesla’s competitor Fisker Automotive, regenerative fuel cell maker Bloom Energy, low-cost solar filmmaker Miasole, and smart-grid technology company Silver Spring Networks.

So if Jim Cramer does not want to invest in public clean energy providers and John Doerr is preferring investing his money in the iFund (iPhone apps) and the sFund (social networking start-ups) instead of private clean energy providers, WHO WILL? Let face it, if we do not change something and very quickly, simply said NO ONE!

So what do we do? There is only one solution: new policies that provide adequate regulations, funding and taxes to support the cleantech industry and make it more profitable than the fossil fuel industry.

And let be smart, there are solutions to make the cleantech industry economically attractive, and forcing the energy migration from fossil fuel energy to cleaner ones.

Following is a simple proposal from economist Jeffrey Sachs (published recently in project syndicate).

“We need to induce power suppliers to adopt low-carbon energy sources. Suppose coal produces electricity at a cost of $0.06 per kilowatt-hour, while solar power costs $0.16/kilowatt-hour. The tax on coal-based electricity would have to be $0.10/kilowatt-hour. In that case, consumers would pay $0.16/kilowatt-hour for either coal or solar. The utilities would then shift to low-carbon solar power.  

Politicians are loath to impose such a tax, fearing a political backlash. A feed-in tariff subsidizes the low-carbon energy source rather than taxing the high-carbon energy source. In our example, the government would pay a subsidy of $0.10/kilowatt-hour to the solar-power plant to make up the difference between the consumer price of $0.06 and the production cost of $0.16. The consumer price remains unchanged, but the government must somehow pay for the subsidy.

Here is another way. Suppose that we levy a small tax on existing coal power plants in order to pay for the solar subsidy, and then gradually raise consumers’ electricity bills as more and more solar plants are phased in. The price charged to consumers would rise gradually from $0.06/kilowatt-hour to the full cost of $0.16/kilowatt-hour, but over a phase-in period of, say, 40 years (the lifespan of the newest of today’s coal plants).

Assume that as of 2010, the entire electricity system is coal-based and that the electricity price paid by the consumers is $0.06/kilowatt-hour. By 2014, suppose that 10% of the 40-year transition to solar power has been achieved. The consumer price is raised 10% of the way from $0.06 to $0.16, thus reaching $0.07/kilowatt-hour. 

The coal tax for 2014 is then set at $0.01/kilowatt-hour, which is just enough to pay the needed solar subsidy of $0.09/kilowatt-hour. Solar producers fully cover their costs of $0.16/kilowatt-hour, since they sell power to the consumers at $0.07/kilowatt-hour and receive a subsidy of $0.09/kilowatt-hour. A small coal tax can support a large solar subsidy.

Suppose, further, that by 2030 the transition to a low-carbon economy is halfway completed. The consumer price for electricity is now set at $0.11, exactly halfway between $0.06 and $0.16. The coal tax is now raised to $0.05/kilowatt-hour, just enough to cover the solar subsidy of $0.05/kilowatt-hour. Once again, the solar producers cover their costs exactly, since the subsidy of $0.05/kilowatt-hour closes the gap between the consumer price ($0.11/kilowatt-hour) and the producer cost ($0.16/kilowatt-hour).

Let us presume, finally, that by 2050, all electricity production has made the transition to low-carbon energy sources. The consumer price finally reaches $0.16/kilowatt-hour, enough to cover the full cost of solar power without a further subsidy.

This approach allows higher consumer electricity prices to be phased in gradually, yet establishes strong, immediate incentives for adopting solar power. Moreover, the government budget is balanced every year, since the coal tax pays for the solar subsidy.

The actual transformation in the coming years will have one major advantage compared to this illustration. Today’s solar power plants might cost an extra $0.10/kilowatt-hour compared to coal, but such plants will be much less costly in the future because of improved technology. Thus, the magnitude of subsidies needed in a decade or two will be lower than they are today.

Energy debates in the US, Australia, and other countries have centered so far on introducing a cumbersome cap-and-trade permit system. Every major user of fossil fuel would need to buy permits to emit CO2, and those permits would trade in a special marketplace. The market price of the permits would be equivalent to paying a tax on CO2 emissions. 

Unfortunately, cap-and-trade systems are difficult to manage and don’t give clear signals about the future price of permits. Europe has adopted such a system, but other parts of the world have repeatedly rejected it. In fact, Europe’s biggest successes in promoting low-carbon energy have come from its feed-in tariffs, and carbon taxes in some countries, rather than its cap-and-trade system.  

The time has come for the US, China, India, and other major economies to declare how they will foster their own transition to a low-carbon economy. A small and gradually rising carbon tax that funds a feed-in tariff system could win political support in the US. It could also help to foster consensus among the major coal-based economies, including China and India.  

There really are effective long-term solutions to manmade climate change that are politically acceptable and feasible to implement. It is time to embrace them.”

And, it is time to make the cleantech industry so attractive that both Jim Cramer and John Doerr are dying to invest in it.

Note: The picture above is Green Still Life from Pablo Picasso.

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