The “green” agenda at the upcoming World Economic Forum's annual meeting in Davos will likely underline a continued fragmentation of global leadership in cleantech -- with the sector’s center of gravity slowly moving from the developed world to the emerging markets.
Part of this shift is simple demographics, says Jigar Shah, founder of the solar energy financing firm SunEdison and now CEO of The Carbon War Room, a Davos-attending, think tank promoting market solutions to climate change.
“Emerging markets are where the young consumers live,” he says. “It is only natural that they will consume more than the baby boomers in the United States.”
Discussions in Davos on climate change and carbon emissions—important drivers in the cleantech sector, and typically concerns of corporations and governments in the developed world—will also include more sessions on energy efficiency and water, food and energy security - all growing concerns in emerging markets.
By some metrics, the industrialized economies still dominate the cleantech sector.
According to the World Intellectual Property Organization, which monitors patent applications, US businesses and entrepreneurs filed more than 45,000 patents in 2009, including cleantech patents—about five times the applications of emerging-market leader China.
“We didn’t lose our dominance (in technology) because the iPhone is manufactured in China,” says John Gimigliano, KPMG’s principal-in-charge of the firm’s energy sustainability tax practice. “Apple still adds a lot of value.”
Shah agrees. “Technology leadership still comes from the OECD countries, while manufacturing leadership comes from China, Malaysia and other places in Asia, as usual,” he says.
He also points out that the U.S. has the largest amount of installed renewable energy in the developed world, another key cleantech segment.
But other countries have plumbed niche markets to become cleantech segment leaders.
In biofuels, Brazil is a production leader, producing 40 percent of the world’s ethanol in a move first driven by high imported oil prices in the 1970s.
In wastewater treatment and water management, Israeli cleantech firms have led the way, attracting hundreds of millions of dollars in investment in recent years, doubling the size of the sector for $1.4 billion in 2008 to estimates of $2.8 billion in 2011.
This kind of specialization is typical of a sector moving out of a high growth phase, says Gimigliano.
“It’s maturation of the market,” he says. “That’s a good thing for cleantech.”
But it’s the very nature of cleantech—with growth often prompted by scrambling for a solution to a local, regional or national problem—that could break down traditional sector dominance even further.
“Necessity is the mother of innovation,” wrote Shawn Lesser, founder of Sustainable World Capital, in a report on the Israeli cleantech sector. “Due to its location and terrain, Israel is a country that has had extremely limited natural resources since its inception. Israelis have therefore become experts at getting the most out of limited natural resources.”
So despite headlines touting government support of its national cleantech sector—like China’s planned $1.5-trillion investment in the sector announced this past fall—turning that capital into sector leadership depends on how heavily the specific “problem” that requires a cleantech “solution” weighs on national GDP.
Look at India, says Shah, which he says is predicted to be 300,000 megawatts short in electricity production by 2017.
“Solar and other renewables will have to play a key role,” he says. “India is the place where solar could really take off in the next year.”
China faces the same energy needs, he says, but “they have little solar potential outside of Western China.”
Wind is the renewable energy of choice there, and growth in the wind technology and wind farm project development sector in China has been breathtaking recently, including a $1.4 billion IPO from wind firm Sinovel.
Other concerns to be discussed at Davos, like energy security, could actually swing the cleantech pendulum back towards the developed world.
While Brazil may continue to lead in ethanol, KPMG’s Gimigliano points out that its “unique situation”—the oil crisis that spurred ethanol production there in the first place— likely means they’ll remain king of their own biofuel castle rather than become a Saudi Arabia of ethanol.
“I think that you will see each country start to diversify their oil imports with biofuels,” adds Jigar Shah, noting that the US military and the Department of Energy has signed “significant early contracts” for next-generation biofuels made in the US.
This has led to an explosion of new participants in the US biofuel sector, often looking to capitalize on newer, cheaper feedstocks, like algae.
This kind of focus could lead to another wave of disruptive biofuel technologies exportable elsewhere, says Gimigliano.
“It’s hard to believe how quickly the dynamic has changed (in the US) from corn-based ethanol,” he says.
But while the industrialized economies could still own innovation in cleantech for some years yet, dynamic growth and national priorities could see firms from the developing world come to dominate in scale of deployment.
“The common theme we hear is ‘how does the US maintain its advantage in cleantech?’” says Gimigliano, adding that those fretting over national leadership in this space should look at increasing levels of investor interest in the US cleantech sector over the past several years.
“I’m not really a sky-is-falling kind of guy,” he says, but he adds competition will tighten up in the coming years in some cleantech segments. “I think it’s going to be a horse race.”