Thanks much to Eric W. for filling in while I was off the grid for over a week -- I hereby BOTH denounce AND reject his "snark"...  but hope everyone enjoyed it. Also regrettably missed the Cleantech Venture Forum out in San Francisco last week, which sounds like it was a pretty good one.   Some media coverage on major developments at the event:

•  WalMart and the Cleantech Group's new sourcing announcement
• Cleantech Group expansion into India with Vinod "Greentech" Khosla at the helm
• Discussions on investing in India and China cleantech
• Google, Masdar and Simbol Mining Corp winning awards
• Some photos from the event
• The winning VC firms for the DOE's new EIR program

Deals from the last week or so:

• GTM already discussed Southridge Enterprises, Miles Electric Vehicles, Ausra, 1-Solar, Solar Systems, Hoku, and Climos, as well as Mascoma, APX, PureSense, and ActaCell.  More on the PureSense round here.

• PurFresh (f/k/a Novazone) also closed their Series C, previously discussed back in December.

• Khosla Ventures is part of a reportedly $12mm Series A (in two $6mm tranches) into Pax Streamline.

• GE has so far put $20mm into A123 and $4mm into Think Global.

• SolarPower Israel has raised $1.1mm ("at a company value of a few million dollars") from Precede Technologies and Rosenram Development.

Investors in the news:

• Altira Group closed their fifth fund at $176mm (or $178mm, the linked article appears to have some confusion).

• The latest cleantech deal numbers -- from Dow Jones VentureSource and from New Energy Finance.

• An interview with Dave Ryan of GreenSpark Ventures

• An effort is launched to create a democratic pledge-fund-format cleantech venture fund for "average Joes"

Cleantech cluster-building updates:  Massachusetts thinking big, the Rice Business Plan Competition looks like it will be very strong, New York's renewable energy task force says the state should put $400mm into cleantech, and the Bay Area may enact a carbon tax (hope they checked out my last post on the topic). Finally, it's well worth checking out GTM's 9 big solar trends.

• Germany-based Odersun has raised a EUR 40mm Series B, led by Virgin Green Fund, and including participation by PCG Clean Energy & Technology Fund, AGF Private Equity, as well as existing investors DHTV and Advanced Technology & Materials.  The company will use the funds, as well as other funds raised, to build a second manufacturing plant for their thin-film solar, currently being integrated into accessories like messenger bags, but with additional potential for building-integrated PV.

• Thinner-silicon solar cell developer Suniva raised a $50mm Series B for commercialization of their technology, which they say will be as cheap as conventional electricity.  NEA and Advanced Equities co-led the round, which also included participation by Goldman Sachs, Quercus Investments, and existing investors HIG Investments.  According to VWire, NEA will hold 3 board seats.

I'm looking forward to discussing all the doings in solar financing at the upcoming Solar Market Outlook day in NYC, later this month. Cleantech investors in the news:

• Venture Wire is reporting that DFJ Element is raising their second fund, targeted at $400mm.  The firm closed their first fund in 2006, at $284mm.  They're re-branding as Element Partners.

• Advanced Technology Ventures has closed their eighth fund at $303mm -- the firm invests across several sectors, including cleantech.

• Chrysalix's Wal van Lierop on the emergence of nuclear fusion options.

Other news and notes: One of the major news items on the week were some studies pointing to the potential downsides of biofuels, particularly when forestland and other land conversion is part of the process.  Nathanael has some good thoughts on the issue here and here.  Clearly, the devil is in the details when it comes to the environmental impacts of biofuels.  One can envision a day when biofuels are being certified as being waste-derived, etc., similar to how forest products have seen certification efforts like the Forest Stewardship Council.  But while the debate rages on, cellulosic ethanol is coming to market soon, but it's unclear if people will buy it -- one big problem is the lack of good retail purchasing options for those drivers and fleet owners who might be interested. Meanwhile, in other news...   An Evergreen Solar board director is the latest solar exec to leave, but it's tough to see what trends are underlying this, if any...  Arno Harris has some interesting thoughts on green building trends...  Tyler has a cautionary tale about exactly why it can be so hard for clean technologies to get initial market traction...  (Sigh)... Finally, CERA has some bad news for incumbent energy companies -- clean energy options are coming, thanks to an anticipated $7 trillion in investments in the sector by 2030, and when they do the effects will be "disruptive" and not "incremental"...  But of that $7 trillion, this article suggests not much of it will go to privately-held companies...  Richard Stuebi argues that we need to gear up for a more substantial effort to make some dramatic changes happen -- and yet, the DOE EERE budget is lower than last year's appropriations and other similar cuts are proposed.  Hard to see how all of the above adds up.

That warning applies both to this column, and to the entire cleantech investing industry in 2008.  What with an election year, new agreements and critical choices due on climate change, and the aftermath of a compromise on energy legislation, expect policy discussions to dominate cleantech market headlines next year.  Regular readers of this column will know that we typically shy away from policy discussions, leaving that to those out there smarter and more informed on the subject.  But 'tis the season, and it was a quiet week in deals last week... So let's kick off the commentary by noting this interesting column by Jim Rogers, CEO of Duke Energy (on the always interesting Cleantech Blog).  In it, Rogers argues that under a cap and trade system for carbon emissions (which is the scheme envisioned by most proposed climate change bills in Congress), utilities and other emitters shouldn't be asked to purchase their credits at auction.  As he points out, that would be similar to a carbon tax, but with more uncertainty. While most of the proposed bills out there focus on cap and trade, and it's perceived as being more politically feasible (in a post-2008 timeframe, naturally) than a carbon tax, there's been a lot of chatter among the punditry lately discussing the relative merits of both policy schemes.  In other words, should we impose a uniform tax on all carbon emissions across all categories and let the market sort out emissions levels, or should we set a cap on the total emissions levels that could be allowed, and let market players trade between each other to find the optimal emissions levels for each within that cap.  (For a lot of wonk-y analysis on this general subject, I'd recommend my former employers, WRI) The best way to succinctly dig into such topics is often to delve into a new take on otherwise intractable problems, to help illustrate the contrasts.  So, here's a modest proposal -- What about a hybrid system, with a market-wide carbon emissions fee, and a cap-and-trade imposed on a few key industries. Here's the elevator pitch on how it would work: 1.  A carbon emissions fee would be collected, across all sectors.   It would be low for the first few years, ratcheting up to full levels at the end of a ten-year phase-in period.  This slow phase-in would allow businesses and consumers alike to change their purchasing habits (ie: to more energy efficient vehicles and appliances) in better accordance with the natural lifespans of their existing products.  In other words, you wouldn't have to rush out and trade in the SUV you bought just three years ago, but you WOULD consider the higher carbon emissions fees when making your next vehicle purchasing decision. 2.  For political expediency, and simply for reasons of tax system efficiency, a tax shift would be a potentially powerful use for the collected fees.  Under such a shift, all receipts of carbon emissions fees would be dedicated 100% to reductions in income (or payroll, etc.) taxes, with no discretion for Congress or others to snag the money for other uses.  There's a basic rule of public finance theory which says that if you want less of something, tax it.  And yet we tax income and (net-net) subsidize carbon emissions.  Perhaps that imbalance could be addressed... 3.   Establish a cap and trade system on key industries (e.g., utilities, cement, and the other largest emitting industries with centralized players), with the emissions credits auctioned off.  However... 4.  All fees paid at auction would be credited against carbon emissions fees that the credit purchaser would otherwise be obligated to pay.  This would set a de facto floor on the costs of such credits.  Optionally, in early phases of the scheme there could be price ceilings imposed during the auction, as well.  The auction values could also help revise the end-point carbon emissions fees levels, as an indication of efficient market prices. The concerns about cap and trade are a) market uncertainty due to volatile prices; and b) complicated management of scheme.  The concerns about a carbon tax are a) difficult to set the correct fee level correctly from the beginning; and b) political infeasibility of anything smacking of a new "Tax". The proposal above would be intended to address these concerns in tandem.  It would be a "belt and suspenders" approach that would mitigate the uncertainty impacts on the market from cap-and-trade, while also alleviating fears that emissions wouldn't fall to necessary levels under a tax.  It would also, particularly if done as part of a strict tax shift, potentially be more politically palatable ("polluters pay a fee, and your income taxes are lowered"). There's probably a fatal flaw or two in the above suggestion, it's primarily included to help briefly illustrate the key issues being debated around climate change regulation.  The bigger point is, get ready for a lot more policy chatter.  This is just one idea among many that are being thrown around right now.  Expect that in 2008, there will be a pretty robust (and probably, at times shrill) debate about all of these ideas in the midst of what is shaping up to be a big year for cleantech markets and a big year for politics.  However, this'll probably be the last policy discussion here in this column for a while... Not much happened this week in cleantech dealflow:

•  PE Week Wire reported on Friday that micro fuel cell developer Lilliputian Systems has raised a $20mm extension on their Series C from two years ago.  PEWW reported that DAG Ventures joined existing investors in this latest capital infusion.

• Energy and Power Solutions, a provider of energy efficiency and carbon-related services and solutions, raised a $20mm round of financing, provided by NGEN and Robeco.  It's interesting to note in the linked story that the bankers talked the management team up from their originally envisioned round size of $6mm...

More policy discussion:  Cluster-building efforts in Massachusetts, Pennsylvania, and the Bay Area...  Also, reactions from entrepreneurs on recent developments with the energy bill here and here (self-promotion alert:  these stories mention a couple of @Ventures portfolio companies)...  Speaking of the bill, here's a useful summary. Other news and notes:  An interesting discussion with Richard Swanson of SunPower...   A $200mm Earth Fund is launched, focusing on clean energy in developing economies...  An update on the water sector...  NGP Energy Tech Partners' Jason Hicks has been promoted to Principal...  An update from Tesla...  Interesting to see someone else also point out (along with a few cautionary words) that a few quasi- project finance deals tend to drive quarterly totals for cleantech venture capital...  Energy consumption and production forecasts aren't getting any more balanced...  Finally, here's a useful market map for clean technologies.

We've heard a few folks recently point to the fast-growing cleantech market and draw two conclusions: 1) that additional government policy shifts aren't necessary for cleantech to be a lucrative investment area; and 2) that the "invisible hand" of economics may mean that all this cleantech activity could address climate change even without additional government policy shifts. The first of these conclusions is right, but the second probably isn't. One need only look at the tremendous CAGRs for markets of solar, wind power, and even "unsexy" sectors like energy efficiency to see that rising energy demand, and increasingly constrained supplies, is behind the attractiveness of clean energy as an investment area. Yes, government is playing a vital role as well, but few are investing in cleantech with the expectation that further policy shifts are NECESSARY for it to be a lucrative market (or, to put it another way, if you DO believe that, you're probably not investing in this sector). On the other hand, change isn't happening fast enough to adequately address climate change. There's a big difference between the clean energy market growth being attractive, and it being sufficient. To paraphrase Coase (note: link opens pdf), the invisible hand of the market will by itself drive to an optimal outcome in terms of appropriate resource allocation if and ONLY if three assumptions hold true: 1) perfect property rights; 2) perfect information; and 3) zero transaction costs. When these three assumptions are valid, then things sort themselves out quite nicely. Unfortunately, they are almost never totally valid assumptions in real life situations. And for "tragedy of the commons" situations like global climate change, assumption #1 clearly doesn't hold true (who owns the atmosphere?). There's no need here to re-hash all of the various statistics and stories from the past year or so to illustrate just how critical the challenge is that we are facing as a planet, but clearly some urgency is warranted. All of which is a dork-y way of showing that there is a vital role for government policy to shape the course of the invisible hand in such situations. Which explains the urgency around the need for additional significant government policy shifts, so that externalities related to climate change are adequately addressed. In this case, the invisible hand is strong enough to drive powerful growth in clean energy markets, but not sufficient for fully addressing global needs. And of course, further governmental shifts are likely to have a further beneficial effect on our markets... Cleantech investors face a bit of a messaging challenge in arguing that on the one hand, our investments don't require further policy shifts to be successful; but on the other hand, further governmental change is necessary. The wonky argument above clearly doesn't resolve this messaging challenge, but it does help explain it... Deals from the past week:

• Seattle-based Optimum Energy, a developer of software for building energy efficiency, announced a $5mm second round of financing, "virtually all picked up" by Columbia Pacific Management.

• Semplice Energy, a UK-based provider of turnkey energy efficiency and renewable energy services to customers like McDonald's and the London Fire Brigade, announced a $1.23mm round of financing from BIP Fund, a Bahamas-based VC group.

• UK-based Bac2, which has developed proprietary plastic materials for use in fuel cells and other applications, has raised a GBP2mm round of angel financing from London Seed Capital and London Business Angels.

• Magnetic bearing manufacturer Synchrony has raised a $10mm Series B round, from affiliates of Third Security LLC. Third Security affiliates had also provided the company's Series A financing. Synchrony's technology has applications in maglev.

• Sweden-based NanoFreeze has raised an SEK 7.4mm round of financing (note: opens pdf) from Northzone Ventures and TeknoSeed AB. The company's technology helps capture waste heat to generate electricity.

• VWire reported this week that American Aerogel has raised a $3.2mm Series B, led by Vimac Ventures and including participation by Mount Royal Ventures.

• Australia's Smart Storage Pty Ltd has raised a "significant" amount of venture financing from Oz-based Cleantech Ventures and the national science agency CSIRO.  The company is developing grid-scale electric storage technology.