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Financial meltdown: Still bad for the environment

A few weeks ago, I made some guesses about how the big picture trends in the economy would affect the development of clean energy. And though it’s still early days for the financial crisis, so far my guesses look pretty good.

The Times talks to a few industry insiders, who confirm that the credit crunch is slowing down clean energy projects. Abyd Karmali, the global head of carbon emissions at Merrill Lynch, is optimistic in the long-term (as, I suppose, I am too), but acknowledges that funding for energy development is becoming more difficult to find.

Meanwhile, Earth2Tech notes that venture funding for clean tech start-ups remains strong for now, but doesn’t “expect the party to last.” Of course, venture funding isn’t really the best proxy for the financial sector as a whole, and Earth2Tech notes that the credit crunch is already hammering ethanol plants. Environmentalists may not shed any tears for the ethanol industry, but insofar as the plants are stand-ins for the broader clean energy sector, it does appear that tight credit and lower fossil-fuel prices are slowing deployment of renewables.

About those fossil-fuel prices: I mentioned that high fossil-fuel prices are good for renewables. And, in theory, a slowing economy will cause fossil-fuel prices to drop, further hampering clean energy deployment. This process seems to already be underway, although fossil fuel prices remain highly volatile for reasons that no one fully understands (however much they pretend otherwise). So I’ll stick with my prediction that the long-term upward trend in fossil-fuel prices is good for clean tech, but that ongoing volatility will blunt the benefit.

Finally, I mentioned the importance of the political environment and the precarious state of climate legislation during an unfolding financial crisis. This remains true. Karmali claims that uncertainty over the Kyoto successor treaty is holding up projects in Europe, and recent days have seen a raft of articles on European countries that are getting balky about carbon caps in the face of a recession. The good news here in the U.S. is that regional initiatives such as WCI and RGGI appear to so far be proceeding as planned. Federal legislation, on the other hand, seems as distant as ever.

The depths of the current crisis won’t be known for a while. The bailout plan needs time to work, and its success is not guaranteed. In any case, the clean energy sector will undoubtedly continue to grow no matter what happens. Just not as quickly as could otherwise be expected.

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