The 2nd ARPA-E Summit: Same As It Ever Was?

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The second ARPA-E Energy Innovation Summit last week was a big dose of déjà vu for me. I had the privilege of attending last year as well, so I’ve gotten a chance to see how this energy R&D conference has changed over the course of a year.

At first glance, it would appear that not much has changed.

The mission is still the same, and so is most of the messaging. Namely, government R&D dollars have funded the early development of some of the most important innovations of the last century. Moreover, they have funded projects no rational private market investor would back. The social returns from investments like ARPANET (now your “interwebs”) have been vast and were achieved with a relatively small amount of invested capital.

Yet, energy — the only sector which truly touches every aspect of our economy — has seen little government investment, other than a brief period in the mid-70’s. ARPA-E is marketed as the solution to that problem, and by all accounts it has been successful in bringing a lot of otherwise “unfundable” technologies out of our nation’s labs. And, in doing so, it has attracted private market capital to the tune of $4 for every $1 of ARPA-E investment.

But, while the positioning is largely the same, what has changed is the political context.

Last year, the Democrats had a majority of both the House and the Senate. While the economy was nominally worse than it is today, government activity in cleantech was certainly higher. There was a palpable feeling of optimism. We all thought Change (capital “C”) had come to cleantech.

Alas, we spoke too soon. Today, Republicans and Democrats are more or less on equal footing and environmental issues have taken the back seat to the 800-pound gorilla: a negative national net worth of $44 trillion (sourceMary Meeker of KPCB, who includes off-balance sheet liabilities). So, the key question has become: “How can ARPA-E convince Congress that single digit billions are still a good investment in our nation’s future? How can we avoid being trampled under foot by budget reform?”

The answer was another word with a capital “C”: China. It used to be that the 3 legs of the cleantech stool were Economics, Security, and Environment (c.f. my post “What is cleantech anyway?”). As Schwarzenegger reminded us in his keynote at ARPA-E last week (“Steven, how are your gluts?”), there’s no point in arguing about global warming with people who don’t believe in science anyway.

So, we’ve pivoted. China is now the third leg of the cleantech stool.

China is much scarier than global warming to the average American. Last year, China invested seven times more than Americans did into clean infrastructure, when measured as a percent of GDP. Its economy is growing rapidly, while ours is flattening out. It has the political flexibility to build projects “by fiat,” while we’re stuck in the muck and mire of permitting and NIMBYism. We are financially leveraged to the hilt; and much of the money we owe, we owe to China. China’s manufacturing sector is growing, fueled by domestic (as well as international) demand. Ours continues to shrink, as increasingly commoditized products fail to support the kind of wages and legacy costs associated with our labor force.

In the context of China, cleantech is no longer about saving the environment. It’s about saving the USA, by creating both a domestic market for clean technology and a domestic manufacturing base to commercialize it. Unfortunately, ARPA-E is not set up to solve these problems in the near-term. Yet, it finds itself contending with the political reality created by those very problems.

As we look towards 2012, we must remember that the rules of the game have changed. Perhaps rightly so, the #1 concern in Washington is the national balance sheet. As long as cleantech conflicts with that priority, it will face an uphill battle for federal support. We need to focus on reframing cleantech as China has itself — a competitive advantage that will bolster the USA on the national stage over the next century.

Alex Taussig is a Principal with Highland Capital Partners and invests in startups tackling problems in some of the world’s oldest and largest industries — including energy, education, and machine automation. You can find this blog post, as well as additional content on his blog You can also follow Alex on Twitter at @ataussig.

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You’re forgetting that certain political parties in the US have US coal and oil interests in mind. And those coal and oil interests don’t want to see any “Real” competition from a renewable energy technology company that could replace them.

thus, the fearmongering about the debt.

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