Is the Stimulus Failing Clean Tech?

Gregory Trimarche

Clean tech generally means those products and services that reduce the use of natural resources -“ especially fossil fuels -“ and decrease or eliminate harmful emissions or wastes. Beyond being good for our environment, most agree that the advancement of clean tech is likely to be one of the most significant engines for U.S. job growth over the next decade.

Seed- and early-stage companies are the lifeblood of the clean tech industry. As was the case in the early dot-com era, small companies often produce the greatest innovations in the shortest period of time. The struggle for many such companies is to cross the bridge from pre-revenue concepts to commercial viability.

Michael Levin

The American Recovery and Reinvestment Act (also known as the Stimulus or ARRA) was designed in part to provide a direct infusion of capital to clean tech companies capable of producing a big return on the investment.

Small businesses generally create the most jobs. According to a March 2010 report by the Department of Energy, “Small Businesses Helping Drive Economy: Clean Energy, Clean Sites,” between 1993 and 2008, 64 percent of the 22.5 million net new jobs were generated by small businesses. (The report defines “small business” as one having fewer than 500 employees or qualifying under Small Business Administration guidelines.)

The DOE report also attempts to make the case that the stimulus has been a boon for clean tech small businesses. While some startups and early-stage players have benefited from the Stimulus, the vast majority of award recipients are large corporations. According to the DOE report, of the 1,058 clean energy companies selected for an ARRA award, only 261, or 25 percent, are small businesses. Perhaps more telling, of the roughly $10.44 billion in total grants and loans, only 9 percent, or $888 million, has gone to small businesses.

The numbers are even worse for some emerging clean tech sectors. Of the $122.7 million awarded to advanced battery and electric drive projects, only 6 percent went to small businesses. Other programs reflect this trend: small business represented just 11 percent of recipients for transportation electrification, 12 percent for advanced vehicle technology manufacturing loans, 2.3 percent for smart grid investment grants, and 10 percent for energy storage demonstrations.

One bright spot for startups and early-stage companies has been the Advanced Research Projects Agency-Energy (ARPA-E) program. ARPA-E was modeled on the Defense Advanced Research Projects Agency (DARPA), which is credited by many as providing the foundation for the modern-day Internet. Like DARPA, ARPA-E is geared towards high-risk, high-reward research that might not otherwise be pursued. This sort of research is exactly what the clean tech sector needs. The only problem is the limited size of the program -“ just $400 million in total funding.

Therefore, unless a clean tech small business gets lucky with an ARPA-E award, it is usually out in the cold when it comes to federal funding. Compounding the problem for these companies is the expectation among private investors that their investment will be leveraged with government grants and loans.

If the United States is serious about being home to the next “Green Google,” government clean tech spending must further empower startups and early-stage companies, not stack the deck against them.

Gregory Trimarche and Michael Levin are, respectively, Co-Chair and Executive Director of CleanTech OC, a trade association promoting economic growth in the Orange County, California clean technology industry. Trimarche and Levin are attorneys at Bryan Cave LLP, an international law firm with over 1,000 attorneys in 19 offices worldwide. Trimarche and Levin can be reached at [email protected] and [email protected].