There's gold in those green hills

THERE can be no doubt that the green sector is attracting funding like never before as governments and investors around the world commit billions to eco-businesses and “clean” technologies in the fight against climate change.

Barack Obama, the new American president, indicated a sea-change in his country’s thinking on the environment when, in his inaugural address, he promised to “harness the sun and the winds and the soil to fuel our cars and run our factories”. As part of a fiscal-stimulus package the American government is pledging $50 billion (£35.5 billion) of funding for clean energy and carbon-reducing programmes.

Kleiner Perkins Caufield & Byers, a Silicon Valley venture-capitalist, has more than tripled the amount earmarked for clean-technology companies, reserving a third of its new $700m investment fund for clean-technology start-ups.

In January this year, José Manuel Barroso, president of the European Commission, announced a £4.5 billion economic regeneration package that included £1.1 billion for carbon capture and storage test projects in Britain, Germany, the Netherlands, Spain and Poland. The new technology aims to trap carbon emissions from big industrial polluters and bury them underground in saline aquifers.

This comes on top of other EU environmental projects, such as its £25m Eco-innovation fund for proven technologies in materials recycling, sustainable building and waste reduction.
In Britain, the government claims £50 billion will be spent on green technologies between 2008 and 2011, thanks to direct government spending, fiscal support and private investment responding to new energy-efficiency regulations. This includes £23.2 billion allocated to public transport and low-carbon and electric vehicles.

The Department for Business, Enterprise & Regulatory Reform (www.berr.gov.uk) and the Department for Environment Food & Rural Affairs (www.defra.gov.uk) launched a £400m Environmental Transformation Fund last April to help develop low carbon and energy-efficient technologies.

And non-governmental bodies like the Carbon Trust (www.carbontrust.co.uk), which usually funds proven technologies in partnership with private-sector investors, has so far invested £10.8m in 12 firms that have managed to raise £110m in total. It usually makes investments of between £500,000 and £2m at a time.
However, all is not so rosy in the private sector. The British Venture Capital Association (www.bvca.co.uk) said about three-quarters of all venture-capital investments were under £2m, with the average size of early-stage investments proving to be very erratic over the past nine years. In 2000 the figure was £1.7m, but this fell to £600,000 in 2003. It rose to £1.9m in 2006, before falling to £865,000 in 2007.
Cleantech Group, an American research firm, has found that European venture-capital investment in clean-technology companies was only a third of the $3.7 billion that American venture-capital companies committed in 2008. This is a big fall from two years ago when European investment was two-thirds as much as in America.

According to Library House, another research group, British venture-capital investment in clean-technology businesses grew from £407m in 2006 to £958m in 2008, but Nesta, the independent National Endowment for Science, Technology and the Arts (www.nesta.org.uk), believes there is still a serious funding gap for early-stage technology businesses. It is calling for a new £1 billion fund of funds to help bridge this gap.

The message for eco businesses is that the best source of financial help, especially during an economic downturn, is the public sector. Venture capital is likely to remain the junior partner while the global recession continues.
Matthew Wall