When Congress passed the stimulus package in 2009, many in the cleantech community hoped it marked the beginning of a sustainable energy policy in the U.S. But some were more skeptical.

Dennis Costello, a managing partner for Braemar Energy Ventures, alluded to the unsustainability of stimulus-level spending over the long term: "There are a lot of countervailing factors to give pause to being over-exuberant on the future of energy sector and cleantech," he said.

Indeed, the federal landscape is dramatically different today. Three years ago, businesses in the cleantech sector were figuring out how to deal with a massive surge of federal dollars. Today, they're looking at a spending cliff. While some raised concerns about the political fallout from spending so much stimulus money on energy, no one could have imagined the budget showdown currently underway that will likely force a steep decline in federal cleantech investments.

After missing last week's deadline for the sequester, the White House and Congress are hoping to agree on a budget deal before some of the steeper cuts hit later this month. If an agreement is not reached, a variety of programs supporting clean energy technologies will be hit.

Here are five ways that cleantech could get pinched by the upcoming sequester.

1. Reduction of Treasury grants for renewable energy projects

This is one of the most immediate issues facing developers. The Treasury Grant Program was created in the stimulus to address the lack of tax equity for renewable energy project development. The program supported 13,000 megawatts of wind and solar projects and was credited with saving the industry in the aftermath of the financial collapse. However, Congress reduced the value of Treasury grants by 5 percent as part of recent fiscal cliff legislation. (The White House initially recommended a 7.6 percent reduction.) Developers that signed contracts with the assurance that they could get 30 percent grants through the Treasury may see project economics compromised. The Solar Energy Industries Association has been lobbying Congress and the White House to take grants off the chopping block.

"We may see project timelines slip, resulting in contract and job losses. SEIA hopes for a speedy and thoughtful resolution to minimize these losses and to protect the solar industry and the greater U.S. economy,” said SEIA President Rhone Resch in a statement after the sequester deadline passed last week.

UPDATE: On Monday, the Treasury issued 8.7 percent cuts to grants:  "This means that every award made to a Section 1603 applicant on or after March 1, 2013 through September 30, 2013 will be reduced by 8.7 percent, irrespective of when the application was received by Treasury. Awards made prior to March 1, 2013 will not be affected. The sequestration reduction rate will be applied until the end of the fiscal year (September 30, 2013), at which time the sequestration rate is subject to change." You can find the entire statement here.

2. A slowdown of renewable energy development on public lands

The Interior Department is warning that cuts will slow down permitting of energy projects on public lands. In a speech late last month, Interior Secretary Ken Salazar said the sequester would negatively impact the timing of dozens of wind, solar and geothermal facilities slated for development on federal lands. The combined portfolio represents more than 10,000 megawatts of capacity, which, according to Interior, would support 13,000 construction and operation jobs.

“We have made impressive gains, approving dozens of utility-scale solar, wind and geothermal projects in the West and transitioning from planning to commercial leasing for offshore wind,” said Salazar at an offshore wind conference. “The potentially devastating impact of budget reductions under sequestration could slow our economy and hurt energy sector workers and businesses.”

3. Layoffs and delays for new standards in the energy efficiency sector

In a letter to Congress, Energy Secretary Steven Chu warned that the sequester would reduce the number of projects under the low-income weatherization program by 1,000 -- potentially resulting in the layoff of 1,200 workers in the efficiency sector. Chu warned that the funding reduction could also compromise state-level efficiency programs by closing job training centers and limiting the number of skilled workers performing retrofits. The Department of Energy would also need to scale back the creation and approval of efficiency standards for equipment -- a process that efficiency advocates say is already moving at a "glacial pace."

4. Shutdown of advanced vehicle manufacturing facilities

The DOE's Vehicle Technologies Program could also take a major hit. The program sets up collaborative projects between industry and government to develop lighter materials, improvements to internal combustion engines, and next-generation electric vehicles. Secretary Chu warned that the sequester would delay major projects by up a year or more, and also shut down the department's demonstration facility for up to eight months. 

"A cut to the Department’s Vehicle Technologies Program would delay the program’s efforts to leapfrog the current technologies in critical areas of advanced vehicles, batteries, and lightweight materials, slowing American development of cleaner and more efficient vehicles as affordable as today’s vehicles," said Chu.

5. Scaling back energy R&D programs

Even with such strong support across party lines for energy R&D, key programs could take a hit in that area as well. The biggest unknown is what will happen to the DOE's Advanced Research Projects Agency for Energy, a nascent agency that provides support for early-stage innovative technologies. The legislation creating the agency will expire at the end of this year. And although the exact cuts haven't been defined, Secretary Chu said the sequester would "scale back" ARPA-E's efforts, which some argue already lack the appropriate funding levels to make an impact.

"The biggest worry with all of this is that we are pretty small. And it wouldn’t take much for us to get lost" in the fiscal negotiations, said ARPA-E Deputy Director Cheryl Martin in an interview with GTM.

DOE's various offices would also see key R&D programs like the SunShot initiative and Smart Grid Demonstration Initiative that could see substantial cuts.

With or without forced budget cuts through the sequestration, the cleantech industry is already facing a major reduction in federal spending. According to a recent report from the Brookings Institution and the Breakthrough Institute, spending is set to decline by 75 percent by 2014 compared to the surge in 2009. Even excluding stimulus funds, federal investments are set to decline by more than half next year.

Tags: budget cuts, cleantech, federal government, sequester, stimulus, tax credits