Joe Muscat unravels cleantech deals

Despite the state of the dollar and the general economic downturn in the United States, U.S. venture capital investments in cleantech continue to climb. In the second quarter of 2008, cleantech investments increased 41 percent to nearly $1 billion, the biggest abount on record for a single quarter to date, according to a report released by Ernst & Young and authored by Joe Muscat, the firm’s Americas director of cleantech and venture capital. Sustainable Industries called Muscat to find out what’s fueling the unprecedented growth in cleantech investments, what effect a U.S. recession could have on venture investments, and what role large corporations are playing in the cleantech sector.

SI: Why do you think cleantech investments climbed so significantly in Q2 2008?

JM:Well there are a few things going on. First, we’ve seen some major structural changes in the energy markets. In general, there’s an increased awareness about climate change and increased government regulation. There’s also increasing demand globally for energy, particularly in the developing world, and that demand is a long-term trend. And there are things happening on the sidelines, too. Countries are expressing a desire to become energy independent; prices are continuing to go up, which drives this as well; and the level of innovation in the energy industry right now is unprecedented.

On the carbon emissions side, you’ve got regulation happening globally. The European Union has shown leadership in driving corporate and local government behavior in regards to carbon emissions, and consumers have responded favorably. Activity is picking up in the United States, as well. Regulation is happening predominantly at the state level, but a lot of companies are getting in on climate change initiatives as early adopters: They want to be ahead of the curve and position themselves well to address consumer and corporate demand for services and products related to climate change.

All of these changes together are driving companies to find new ways to innovate. And investors are seeing return potential in this sector that wasn’t there six or seven years ago.

SI: What effect is the U.S. recession having, if any, on cleantech investments?