European companies will remain world leaders in developing green technologies even in times of economic recession, but Europe must work on attracting more venture capital to bring these products to the market, business leaders told a European Business Summit session last week.
Business representatives debating the impact of the financial crisis on eco-innovation unanimously agreed on 26 March that investment in research and development in the area of green technology would be the last to go.
The panellists saw the economic slowdown rather as an opportunity to make the switch to a low-carbon economy, calling on the EU not to neglect the need to promote eco-innovation.
EU Science and Research Commissioner Janez Potočnik emphasised, however, that only 5% of research spending is done at EU-level, while the majority of public money is controlled by individual member states. Boosting innovation is therefore not only about increasing EU funding, but better managing national resources too, he said.
Business representatives agreed with the commissioner that greening the economy requires a change in the consumption patterns of European citizens.
"Market uptake is a problem in Europe," Potočnik said, adding that boosting demand for green products is not a question of money but rather of regulation and standardisation.
Patricia Ceysens, Flemish minister responsible for innovation, said policy instruments can set the market on a green track. We need to ensure that "the invisible hand of the free market becomes green," she said, emphasising the importance of the EU climate package agreed last December and negotiations for a post-Kyoto global climate agreement.
"Setting the right price on fossil energy will help a lot," Ceysens argued. She added that making financial incentives greener and facilitating green venture capital were crucial solutions.
Europe lags behind on venture capital
At another session on venture capital and clean technology on 27 March, panellists emphasised a gap between EU leadership in eco-innovation and the United States' clear advantage in attracting venture capital to bring these products to market.
Venture capital plays a key role in driving clean technology and is growing fast both in the US and Europe. Bart Diels, investment director at venture capital firm GIMV, nevertheless pointed out that while Europe is catching up with the US in the number of investments, the size of an average US deal is still twice the amounts invested in Europe.
Public-private partnerships crucial
Jean-Noël Durvy, director for innovation policy at DG Enterprise and Industry of the European Commission, said public private partnerships are particularly important to finance clean technology in Europe, because Europeans are less inclined to take risks on the market than Americans.
He said Europe doesn't have very early-stage investors, which means that the public sector must step in. When technology is more mature, venture investors will move in, but public support is still needed.
The reason venture capital in clean tech is more risky in Europe is because the US market is more global, according to Diels. The panellists thus called on governments and the EU to set up frameworks to encourage investment, for example by facilitating cross-border venture capital.
Joëlle Chassard, who manages the carbon financing unit at the World Bank, stressed in an interview with Blogactiv that many of the clean technologies needed to address climate change already exist and it is a question of seeing how these can be disseminated to the developing world.
"Because climate change is a problem of such a magnitude, one will also have to work on the development of break-through technologies," she said, adding that the World Bank is "developing partnerships between developed and developing countries for the adoption of such technologies".
Although the EU's climate legislation and US President Obama's climate plan support clean technology, Bart Diels, investment director at venture capital firm GIMV, told Blogactiv after the session that the money will still need to find the right address. "The question there is: how will that money filter down from these big programmes to small and medium-sized companies, or to venture capital firms, to support the investments in this industry?," he stressed.
"The problem with venture capital is that the cycle for typical venture capital funds is somewhere between eight and 12 years. If you invest in very early-stage clean technologies, the time to market is longer than that cycle within venture capital. So we called for government support, certainly at the early stage of the clean tech deals, to make them ready to enter the venture-capital scene," Diels told Blogactiv.
7-18 Dec. 2009: UN Climate Change Conference in Copenhagen to agree a post-Kyoto deal.