Cleantech: a New Engine of Economic Growth for New York State
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Cleantech: A New Engine of Economic Growth for New York State January 2007 New York City Investment Fund A Partnership for New York City Organization New York City Investment Fund A Partnership for New York City Organization The New York City Investment Fund is the investment and CO-CHAIRMENEN economic development arm of the Partnership for New York Russell L. Carson City. The Investment Fund is the vision of Henry R. Kravis, Henry R. Kravis founding partner of Kohlberg, Kravis, Roberts & Co., who serves as its Co-Chairman, along with Russell L. Carson, CO-CEOS AND CO-PRESIDENTS General Partner of Welsh, Carson, Anderson & Stowe. The Maria Gotsch Investment Fund has raised over $100 million to mobilize Janice Roberts the city’s world financial and business leaders to help build a stronger and more diversified local economy. To that end, the Investment Fund has built a network of top experts from the investment and corporate communities who BOArd OF DirectOrs help identify and support New York City’s most promising Michael A. Carpenter entrepreneurs in both the for-profit and not-for-profit John W. Carr sectors. Richard M. Cashin Jerome A. Chazen Alan H. Fishman One Battery Park Plaza, 5th Floor Martin J. G. Glynn New York, NY 10004-1479 David W. Heleniak telephone: 212.493.7548 Jeffrey B. Kindler fax: 212.344.3344 Adebayo O. Ogunlesi www.nycif.org Alan Rappaport www.partnershipfornyc.org Joseph H. Reich Stephen A. Schwarzman Jerry I. Speyer Kathryn S. Wylde Table of Contents Executive Summary ...........................................................................1 Cleantech Industry Overview ....................................................... 3 Investment Activity in Cleantech ................................................ 7 Competitive Strengths of Downstate New York / New York City .........................................................14 Competitive Strengths of Upstate New York .........................23 Role of Government ......................................................................30 Conclusions and Recommendations .......................................35 A. Executive Summary Cleantech is an emerging sector of businesses that contribute to a cleaner, more energy efficient environment. Cleantech companies produce goods and services that promote conservation of natural resources and provide cost savings to the end user. The cleantech industry1 could offer a new source of jobs and economic growth for New York by leveraging the complementary assets of the Upstate and New York City Metro Area economies. The Upstate region has an underutilized manufacturing base (both in expertise and sites), raw materials and research talent that are all necessary to the cleantech industry. The New York City Metro Area has investment capital, a large market for cleantech products, and the propensity to be an early adopter of new technologies that conserve natural and financial resources. Collectively, the Upstate and Downstate assets are very relevant to an industry that is heavily focused on developing and funding new technologies to increase domestic production of power and to maximize the reuse of local resources, including waste and water. With global revenues in 2005 estimated at $150 billion, the cleantech industry is large and continues to expand. The industry has attracted substantial dollars from venture firms ($1.6 billion in 2005), as well as significant interest from the corporate sector. Leading corporations are increasingly launching cleantech business units or incorporating cleantech products and services into their business operations. Cleantech companies, in particular those focused on alternative energy, are expected to be a significant source of future job growth, creating diverse opportunities in technology, manufacturing, and professional services. Investment in New York-based cleantech companies has not kept pace with the nationwide growth of investment activity in this sector. Most cleantech investment is going to America’s traditional centers of entrepreneurial tech-sector activity, namely California and Massachusetts. If this does not change, New York risks repeating its experience with the information technology and biotechnology industries, where companies came to New York to raise money and sell their products, but created most of their jobs and paid most of their taxes in other states. New York is a leader with respect to “green” policies and incentives that support energy efficiency and a cleaner environment. However, the majority of these programs are focused on the adoption of cleantech technologies by local residents, businesses and government rather than on encouraging the creation of new companies or projects in the state. While the focus on deployment and consumption of clean technologies 1 Major segments of the industry include Alternative Energy & Power, Materials & Green Building, Transportation & Logistics, and Air & Water Technologies. New York City Investment Fund 1 benefits New York by creating a cleaner environment and lowering certain operating costs, it does little to encourage growth in employment and tax revenue. This report articulates the assets of both the Upstate and New York City Metro areas that can contribute to building this industry within the state, as well as the existing New York government programs focused on the cleantech industry. The report also recommends several actions for local government to encourage more entrepreneurial activity in the cleantech sector within the state. The recommendations include: • Create a targeted effort to market the state’s cleantech-related assets to investors, entrepreneurs and corporations focused on this industry; • Commit $150 million of New York State pension fund monies to investment managers that will invest in cleantech companies and projects located within New York; • Establish other producer-related incentives, such as procurement from in-state companies, beta testing programs, and reorientation of NYSERDA to focus on local production; • Leverage the opportunities presented by the Regional Greenhouse Gas Initiative to create jobs in the financial services sector and with related offset projects, such as landfill gas capture, forestation of non-forested lands, or projects that increase the efficiency of energy systems; and, • Identify legislative and regulatory actions that could support the growth of the industry within the state, such as expanded net metering and targeted procurement. With the combined assets of the Upstate and Downstate regions, New York can develop a leadership position in the cleantech industry, provided it can move quickly to attract investment capital to fund companies and projects that locate operations in the state. Although public policy is only one of several things that influences where a company is established, New York’s policies and incentives could more fully leverage the state’s assets to help build a vibrant local cleantech industry. Instead, the consumer orientation of New York’s public policy reflects the fact that environmental concerns have driven the agenda, rather than economic development. New York City has taken an important step in addressing this issue. In October 2006, Mayor Bloomberg established the Office of Long Term Planning and Sustainability, which has a strong focus on economic development and job creation in connection with green and clean initiatives undertaken by City government. A similar shift in policy and incentives at the State level would send an important signal to the investment and corporate sectors that New York is serious about developing a vibrant cleantech industry. 2 New York City Investment Fund B. Cleantech Industry Overview The “cleantech”2 or clean technology industry produces goods and services that optimize the use of natural resources, while reducing ecological impact and adding economic value by significantly lowering cost. As compared to conventional competitors, a cleantech company would use energy, water and other raw materials more efficiently and productively; create less waste and toxic by-products; deliver equal or superior performance; and, improve profitability through cost reduction and increased revenues.3 While companies have been active in the environmental technology area for decades, the focus on the cleantech industry is fairly recent and is in response to several major developments in the world economy and geopolitical system. These include increased oil prices, issues of oil security and supply, and growing awareness and acceptance of climate change as a threat—especially to coastal areas and cities located on major waterways—as well as recognition that waste reduction is not just the “right” thing to do, but can result in real cost savings. While the term cleantech refers to a wide variety of technologies, these technologies can be grouped into four major sectors: Alternative Energy & Materials & Green Transportation & Air & Water Power Building Logistics Technologies • Distributed and • Materials recovery • Alternative-fueled • Water purification renewable energy and recycling vehicles (e.g. hybrid (e.g. water generation (e.g. fuel • Advanced and bio- vehicles) recycling, ultra- cells, geothermal, based materials • Logistics (e.g. filtration systems wind, solar, • Nanotechnology logistics software) and desalination biofuels, (i.e. precision equipment) wave/tidal) manufacturing • Water management • Energy storage and instruments) (e.g. meters, power quality • Green buildings sensors and • Energy and sustainable automation