What is “Cleantech” and Why is it Important?

Delwin Graham - Aug 12, 2019
There is an ongoing debate as to whether the cleantech sector constitutes a vast economic opportunity or is simply a “green bubble.”

The term “cleantech” is quite vague. It stems from “clean technologies” and seems to refer to companies that seek to increase performance, productivity and efficiency by minimizing negative effects on the environment.

Companies that fall into the cleantech basket include those that are focused on renewable energy (wind, solar, geothermal, etc.), water technologies, waste management and recycling, green buildings, energy efficiency, biomaterials, energy storage, vehicle technologies, environmental services, biofuels and carbon. The element that binds these diverse companies together is that their products and services all have both ‘economic and environmental benefits’ (Cf., John O’Brien, “An Introduction to Clean Technology Investment”, www.azocleantech.com, June 23, 2010).

There is an ongoing debate as to whether the cleantech sector constitutes a vast economic opportunity or is simply a “green bubble.” On the one hand, Adam Aston argues that the United States faces a “Sputnik moment” where the country is being outpaced by China in the clean-energy sphere, most specifically in the renewable energy (solar photovoltaic, solar thermal, windmills), nuclear energy and coal gasification industries, as well as the production of high-efficiency cars (electrical and hybrid) and high-speed trains (Cf., Adam Aston, “Investing in Clean Energy: A Sputnik Moment for America?”, www.thefiscaltimes.com, Dec 6, 2010). The analogy here is that the launch of the Sputnik satellite by the Soviet Union in 1957 sparked a surge of U.S. technical and scientific discovery that had reverberations in American satellite technology for decades after. Aston argues that by jumpstarting basic Research and Development funding in cleantech through government policy, the U.S. government should similarly stoke long-term economic growth.

On the other hand, Nordhaus and Shellenberger argue that the cleantech movement is based on the contradiction that the prosperity that is afforded by industrial production is antithetical to environmental protection. We cannot consume our way out of this contradiction, even if it is done in a mindful and earth-friendly way (e.g., recycling, gardening, buying fewer clothes) (Cf., Ted Nordhaus and Michael Shellenberger,” The Green Bubble”, www.thenewrepublic.com, May 20, 2009). Green bubbles burst because liberal urban professionals are not willing to significantly sacrifice the advantages of their lifestyle for an environmental utopian appeal. And so they look for a technological solution to a structural problem brought on by technology.

But it looks like the industrial revolution is here to stay. The growth in the cleantech sector is underpinned by a series of strong industrial drivers that go beyond middle‑class anxieties and guilt. On a social level, the worldwide demand for core services (i.e., power, water, waste and recycling) is increasing due to both population growth and increasing wealth. As the world continues to use and deplete its natural resources, there is increasing pressure on communities to adopt cleantech solutions to increase efficiencies and decrease waste. The recognition of climate change and the need for regulatory structures is another driver (Cf., O’Brien, Introduction).

On a corporate level, revenues for cleantech companies will grow with increasing demand from large industrial companies. This demand is driven by increasing regulatory pressure to report on and reduce environmental impact. This not only includes emission reporting but also a number of other environmental regulations concerning air quality, effluent standards, impact on native vegetation and reduced water availability that are forcing companies to look for more resource-efficient and less‑polluting technological solutions (Cf., O’Brien, Introduction).

Companies are also starting to face supply-chain pressures to both report on the environmental impact of their operations and strive to reduce this impact. To this point, Starbucks offers its customers Rainforest Alliance certification that its coffee was sourced in a way that “respects the people and the place that produces it”.

It would seem then that the potential benefits of the spread of cleantech are far more than just reduced environmental damage. Through adopting technologies that reduce energy, water and resource usage, companies will increase their productivity and their global competitiveness, and countries will drive their economic development and employment. Clean technology investing is not just about providing the scientific foundation for future technologies; it is not merely a Sputnik moment. Cleantech is the essential transition to a world where efficiency is improved, productivity and economic growth increases and communities function more effectively. This is where investing in cleantech should derive superior long-term investment returns.