Introduction

America must modernize its energy policies to address the twin challenges of fossil-fuel dependence and man-made climate change. While this work will not be easy, it has the potential to generate immense benefits for our environment and our economy alike.

As if the obvious gains of weaning ourselves from fossil fuel -- a cleaner atmosphere, a stabilized global climate, a national security policy less beholden to the vagaries of the Middle East -- were not enough, there is another prospective gain well worth considering. To put it simply, clean-energy technology (or "cleantech") could become the next great engine of the U.S. economy -- generating jobs and economic opportunities on a transformative scale.

The scope of cleantech's economic potential becomes clear when you think about the sheer magnitude of the tasks at hand. The world's largest economy, with a population of more than 300 million people and a gross domestic product (GDP) of more than $13 trillion, is gradually but steadily committing itself to an overhaul of its energy policy, reconsidering the manner in which it heats its homes, illuminates its workplaces, and propels its vehicles.

While the political, environmental, economic, and cultural forces that have brought us to this reckoning are varied and complex, the market upshot of this transformation is straightforward: Creating the technology, the physical infrastructure, and the myriad support networks for this new energy grid will generate billions of dollars in new economic activity and will require the work of untold thousands of people.

Yet some entrenched environmental interests remain reflexively suspicious of market-oriented solutions to our energy crisis, while many conservatives continue to erroneously claim that a clean environment is incompatible with economic growth. In contrast, we believe that clean-energy innovation can achieve the dual aims of protecting our environment and generating economic opportunity.

Already, the market for cleaner fuels and more efficient devices to improve generation, delivery, and performance now accounts for between 20 percent and 25 percent of all global energy investment. While the cleantech catchword was created only about five years ago, the sector it describes already generates approximately $200 billion a year, according to the Cleantech Network. The trade group reports that the cleantech market raised $1.4 billion in start-up capital in North America alone during the first half of 2006, making it the third largest venture-capital investment category, behind only biotech and software. Not surprisingly, some of cleantech's biggest proponents are the same entrepreneurs behind earlier venture-funded breakthroughs in computing, telecommun-ications, and the Internet.

While such economic mainstays as General Electric, BP, and DuPont are pouring considerable research money into clean-energy technologies, and financial powerhouses from Morgan Stanley to J.P. Morgan are exploring programs to combat climate change, much of the financial muscle behind the early-stage cleantech startups is coming from Silicon Valley venture-capital stars such as Kleiner Perkins Caufield and Byers, the firm that backed Intel and Google. Even Google's philanthropic arm is looking to promote oil-saving technologies such as plug-in hybrid electric vehicles. Cleantech is all about energy, but its economic roots are in the New Economy, not in the old-boy networks of the Oil Patch -- think more Sun Microsystems and Sun Power and less Sun Oil (though that company's successor, Sunoco, has embraced ambitious climate goals).

Because America's energy policies have been so backward in recent years, the country could miss the chance to establish a firm leadership position in the cleantech market. For example most U.S. vehicles do not meet China's stringent fuel economy standards, which limits American access to the world's fastest-growing consumer market. Or consider this: California was the birthplace of wind-power technology, but because the United States failed to put into place the right rules to promote it, Europe now makes 90 percent of the world's wind turbines. Similarly, while the United States was once the largest manufacturer of solar photovoltaic cells, Japan now produces more than twice as many solar cells as America does.

Although the private sector has, to date, served as the primary cleantech catalyst, public policies clearly matter as well. A recent survey of cleantech investors found that 71 percent of them factor regulations, public programs, and incentives into decisions about where to put their money. Perhaps that explains why the majority of cleantech companies are located in California, an innovation-friendly state and the nation's ultimate bellwether of economic, cultural, and political change.

Consider the case of climate change. In 2006, the California Legislature passed and Gov. Arnold Schwarzenegger signed the nation's first state-level law requiring fossil-fuel producers to limit greenhouse gas emissions (Assembly Bill 32). Leading Silicon Valley venture capitalists were among the law's most ardent supporters because they saw the legislation as a way to spur cleantech products and processes, which emit few or no greenhouse gases.

They also saw it as an economic-development measure that could unlock serious capital investment. According to a recent University of California-Berkeley study, Assembly Bill 32 could yield vast dividends for the state as a whole, much the way that investment in computer technology paid off for the relatively compact region now known as Silicon Valley. The study projected that the state of California would gain an additional 20,000 jobs and a $60 billion increase in the gross state product.

While California has been a laudable model, the energy crisis is a national problem requiring national solutions. To reestablish America's lead in cleantech -- particularly in the transportation sector, which is so utterly dependent on foreign oil -- progressives should champion a plan that leads quickly to a clean energy future for the entire nation. The plan must address America's two distinct energy needs: transportation fuel and electricity generation.