CA's Clean-Tech Potential Draws Venture Capitalists Into Fight Against Prop. 23

Investors see Global Warming Solutions Act as a catalyst for innovation

Financiers and venture capitalists are joining California environmentalists in an unlikely alliance ahead of a major climate change referendum on November's ballot. The dispute is a new phase in the climate change fight that is increasingly being framed as old economy versus new, and may forecast what lies ahead.

Proposition 23 is a referendum that seeks to indefinitely halt AB 32, California's Global Warming Solutions Act of 2006, which is aimed at slashing greenhouse gas emissions, until unemployment levels drop to 5.5 percent for four successive quarters.

Not surprisingly, the Sierra Club, the NRDC, CREDO Action and the Environmental Defense Fund, among other green groups, are opposing Prop. 23. What's new is that they've been joined by major investors and speculators drawn by a market in clean technologies and alternative energies that has grown into its adolescence. They're using the power of market instruments to back environmental change—whether that's their intention or not.

"The venture capitalists that brought us Google and Apple are now investing in the new clean energy economy because the companies are seeing returns on investment," said Terry Tamminen, Gov. Arnold Schwarzenegger's former chief policy advisor, and the architect of AB 32.

"Some companies are in it strictly to maximize their profits, but if they can do that by cleaning our air and water, then more power to them," said Sierra Club executive director Michael Brune. "We don't begrudge them for that."

No on 23, the organized coalition campaigning against the measure, has produced data indicating that job and economic losses would be more than balanced by the clean-tech boom awaiting the implementation of AB 32.

Data from the National Venture Capital Association, which strongly opposes obstruction of AB 32, seems to back up that assertion. Representing more than 425 firms nationwide, NVCA says there are some 12,000 companies and 125,000 jobs in California's clean-tech sector. It also says $9 billion in venture capital was sunk into the state between 2005 and 2009.

No on 23 has attracted large donations from business heavyweights, among them billionaire hedge fund manager and environmentalist Thomas Steyer ($2.5 million), investor Robert Fisher ($2 million), technology venture capitalist John Doerr ($500,000) and William Patterson ($250,000), SPO Partners' principal. Others who have anted up include French "values" investor Nicolas Berggruen and Anne Catherine Getty Earhart, the granddaughter of oil baron J. Paul Getty, and clean-tech companies like NextEra Energy, First Solar and Tesla Motors.

The California market for renewable electricity, energy efficiency, cleaner vehicles and low-carbon transportation fuels currently stands at $10.6 billion, according to a recent report by industry watcher Cleantech Group, and will expand eightfold to $79.7 billion by 2020 if AB 32 is fully implemented (as is planned for 2012). Cleantech notes that California leads all others in venture-backed clean-tech companies, with four times more than Massachusetts, the second highest, and six times more than number three Texas.

"In [the] race for clean technology leadership, California has distinguished itself at the head of the pack and has reaped the benefits from increases in clean-tech investment, employment and widespread technology deployment," the report said.

The potential in the market has helped referendum opponents turn the tables on big carbon emitters, according to California campaign finance records. As of Sept. 27, they raised $11.6 million while supporters pumped in contributions totaling more than $8.4 million.

The Sierra Club's Brune expected the opposition's efforts to climb to $25 to $30 million.

But Tamminen does not expect the support and opposition contributions to stay on par in the month left before the vote. He believes that Prop. 23 opponents will top out at $15 to $18 million while supporters are poised to pour money into the campaign in the last month of the campaign.

"The oil companies can write huge checks tomorrow, whereas the No on 23 movement is more like a political campaign involving grassroots and small donations," Tamminen said.

The work to drum up support for the referendum is being financed largely by the carbon-intensive industries that stand to lose most from tighter reporting and reduction regulations—petroleum companies like Valero and Tesoro and the associations that represent them; oil billionaires David and Charles Koch; and lumber and trucking interests.

California's Legislative Analyst's Office concluded that suspension of AB 32 would lead to a "likely modest net increase in overall economic activity in the state from suspension of greenhouse gases regulatory activity, resulting in a potentially significant net increase in state and local revenues."

The Yes on 23 campaign did not respond to a request for comment.

Prop. 23's proponents argue passage would save more than 1 million jobs in California and prevent increases in petroleum prices and natural gas and electricity rates.

"This battle represents a turning point in the debate over climate change," said Sierra Club director Michael Brune. "It's not just about polar bears and better air quality, it's about more jobs and growth in emerging sectors. It's not just environmentalists versus industry, but industry versus industry."

Tamminen, who has now helped eight other states adopt laws like AB 32, said carbon-intensive industries' funding of climate change denial and lobbying efforts leads him to believe that Prop. 23's backers will try other means if it fails to pass.

He draws historical parallels to the effort to derail curbs on climate change pollutants. "This is very much a war between the old and new economies, and it's a movement that can't be stopped. The oil companies have to use their wealth to transition to what's next," he said. "When lighting was gas lamps and transit was by horse and buggy, there were also entrenched interests, but I challenge you to name the maker of a buggy whip. The only names we know are the ones who transitioned to a new economy."

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