California cleantech policy and the need for a U.S. Cap & Trade system

Last Thursday I was invited by Pillsbury Winthrop Shaw Pittman to attend an executive forum on the future of clean-tech investing. The room at their Palo Alto office was packed: cleantech is the hottest subject right now in Silicon Valley! The event was particularly insightful about the issue of carbon Cap & Trade that is widely debated at the moment. This system, promoted by the Kyoto Protocol, tries to regulate carbon emission by setting target levels (Cap) and letting the market set the price (Trade). The target levels are chosen to reduce carbon emission overtime to a level that scientists consider will address Global Warming.

The afternoon event started with an energetic keynote from Lieutenant Governor John Garamendi who has a long history of public service regarding Green issues, in California and nationally. Soft-spoken, he did not shy away from addressing questions from the audience. He acknowledged that California should promote feed-in tariffs to support renewable energy. While he insisted that the overarching policy was clear, he explained the hard work is to find and deal with inconsistencies accross the State. He mentioned the example of UC San Diego that would like to deploy more solar panels on campus (5 MW), but is limited by State law to 1MW!

John Garamendi challenged the audience with a simple question: "Who is responsible?" In the case of the solar example, he took the call and will work with the Legislature to fix it. But he quickly pointed out that we are all responsible in general and called the executives in the room to be proactive: we are all in favor of Green but don't always want to deal with consequences in our "backyards". Still, California is one of the leading States in America in terms of Green policy. There is already a law in place for the State to come back to the 1990 level of carbon emission by 2020.

The panel that followed was the opportunity to confront what is happening in California with the activities of the Federal Government.  One of the panelists, Peter Robertson from PWSP office in Washington DC, reported that carbon emission is a hot subject in DC and that the Senate is trying to move forward quickly with a bill. He thought that Congress will likely not pass the legislation this year but in the next Legislature when there is a new President in office. He concluded that the bill is still moving at lightspeed compared to other environmental initiatives in the past.

Alex Rau from Climate Wedge provided also an interesting international perspective. The U.S. lags behind the International community. For instance, Europe is already operating a carbon Cap&Trade system. He explained that some mistakes were made, and Europe is learning from them for the second phase starting this year and ending in 2012. He pointed out that the U.S. missed the boat of "Carbon 1.0" but has the opportunity to change the game and help define "Carbon 2.0" in 2012. One of the critical issues is to measure the levels of carbon emission and to set an appropriate baseline for allocation. Some panalists noted that there is aready mandatory reporting for the heavy industry in California but that it needs to be extended. At the Federal level, Joe Lieberman led a bill to estimate emissions from regulated entities.

The discussion quickly took a "financial" turn as Cap&Trade attempts to limit carbon emissions based on market mechanisms. The panel went through important issues: auction vs. allocation, cap&trade vs. tax incentives, importance of off-sets for the system to work... Like many other high-tech entrepreneurs in the room, I was less at ease. This is where the event was the most useful: Although it is technology innovation that will solve global warming, it is crucial to understand the new market mechanisms being created and its implications accross industries. 

The reception at the end provided a nice occasion for the executives present to discuss how the clean-tech boom is affecting their business. Many international entrepreneurs talked about what was happening in other countries. Silicon Valley is the heart of the Greem revolution in America because its international breed of entrepreneurs and investors think global, and see it as a fantastic opportunity for innovation and wealth creation.