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'Cleantech' a dirty word for VCs? RUBBISH!

They just think the current schemes are terrible

Worstall on Wednesday Over at Bloomberg there's a piece bemoaning the fact that the big Venture Capital companies aren't investing in "cleantech".

You know the sort of thing: climate change, biggest opportunity ever, why isn't private money getting involved, maybe the government will have to do everything, blather blather, et cetera. The problem with the analysis isn't that it's entirely wrong: VCs are being pretty careful about investing in those wondrous new non-emitting technologies and renewables.

But that's not because they're not interested in cleantech itself: it's because the way that the support and subsidy system for those new technologies has been designed ignores absolutely everything that economists have been saying about how it should have been designed. It's the incentives that are wrong.

The piece itself says this:

People sometimes forget that there’s a big difference between what the government considers a win and what VCs consider a win. According to a recent story from National Public Radio, "the government netted just $30 million after disbursing a whopping $21.7 billion in loans and guarantees to green tech startups like Solyndra and Tesla Motors.

When your mission is to support a government policy and not lose taxpayer money in the process, that might be a perfectly acceptable return. But if you’re a VC guy asking pension funds and other limited partners for money and that's your track record, you’ll be passing the hat for a long, long time.

The financial rewards and growth rates for cleantech startups may only be attractive to long-term, patient investors such as the federal government. VCs, who are cut from very different cloth, are already making their preferences clear.

Solyndra and Tesla aren't really quite the sort of thing that venture capital is interested in. Sure, they have both got some such money but they're both manufacturing companies attempting variations on known technologies. And that's really not quite what the VC investor is looking for: they want the breakthrough, not the variation.

Pay your carbon tax

Assume, as we always do in these conversations, that the IPCC is correct. Climate change is a big oogie boogie that has the potential to entirely disrupt our society. Thus we'd like to do something about it. The question is, what?

Economists have been saying all along (this is true of Stern, of Bill Nordhaus before him, of Richard Tol since and everyone in between, even of James Hansen) that the answer is a carbon tax. It's the CO2 (and CH4 and so on) emissions that are the problem. So, let's make it more expensive for people to emit such externalities.

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