TechPulse 360

There is a valid argument against governments meddling in markets. The discipline of supply and demand is a great equalizer among companies.

A feed-in tariff is the most important thing Ontario has done, says Deputy Minister George Ross

But when they do intervene, and they must, governments have the job of guiding economic development in ways that benefit society. The best example is clean tech.

Clean tech is the most obvious industry of the 21st Century (biotech, too, but that is gist for another blog). The question facing green tech is whether to intervene with tax or fiscal measures, or whether to use seed grants.

In the U.S., the Obama Administration took the seed funding approach, knowing it would have difficulty moving tax policy changes through a Congress stymied by global warming disbelievers, such as the Republican Sen. James Inhofe. The result of infusing the industry with tens of billions in loan guarantees and grants is not yet clear, though it will most certainly stimulate markets and technology development.

In other words, no one knows whether a 21st Century equivalent of the 20th Century “Internet” will evolve.

In Canada, the Ontario government believes its most significant step has been to change the fiscal side of the equation. Its big decision was to install a feed-in tariff, like the one that has spark the solar market in Germany, says George Ross, deputy minister at the Ontario Ministry of Research and Innovation.

The next step for the US government is to attract big pools of clean tech capital, says McKinsey's Dickon Pinner

This long-term funding mechanism offers above market prices for renewable energy and gives industry the opportunity to make long-term investments. “I’ll argue that’s the most important thing we’ve done,” Ross said Thursday at the Cleantech Forum in San Francisco. “There has to be an economic incentive in place that comes as a cost to society,” in this case higher electricity prices.

The benefits have recently become apparent, with Ontario’s ability to attract substantial investments from Samsung and perhaps Vestas Wind Systems, among others.

In the U.S., the next big step for government will be to bring in large pools of capital, says Dickon Pinner, a partner in the clean tech practice at McKinsey. But doing so will mean relying on tax and fiscal measures.

That will mean carbon pricing through a vehicles such as the cap-and-trade bill Congress debated briefly last year. Marc Stuart, founder and director of business development at ecosecurities, pointed out he is a fan of the U.S. effort because it goes further than the European bill by looking decades into the future.

Unfortunately, the bill is stalled by the inactivity of the global warming disbelievers. That could bring the U.S. government to a bit of a dead end, having mostly exhausted its seed grants, even as China and other countries charge ahead.

That may make Canada and the U.S. interesting Petri dishes for exampling the difference between fiscal and seed.