Given the dramatic growth of Cleantech in 2007, with Library House figures showing European venture investment more than doubling in this area compared to 2006, many commentators are asking whether this growth is sustainable, or whether the Cleantech sector is destined to go from boom to bust. The schematic below illustrates some of the major forces at play:

Perhaps the most important economic force behind Cleantech investment in recent years is high oil prices. The 1970s oil crisis saw a brief period of increased environmental concern, but when oil prices dropped significantly, environmental issues were again pushed to fringe of global politics. With oil prices hitting $100 a barrel a few weeks ago, adjusting for inflation, we are back at those 1970s levels again.

Prediction for future world oil prices are complex and subject to inevitable uncertainty. Short term no price drop is in sight, however, oil prices at $100+ per barrel make it viable for non-OPEC countries to make profits producing oil – one example being Canada who has vast oil reserves, historically not viable because of the cost of extraction. Deflationary pressure on oil prices from reduced demand in global economic slowdown is another possibility in the years ahead.

Given the economics alone, Cleantech is still clearly vulnerable to drops in oil prices, but this negates the massive and increasing influence of global politics – incomparable to the situation in the 1970’s. The environment and climate change is one of the highest priorities on almost every major political agenda, and the chances are that the next US administration will pay greater attention to this. Sacrifice was a word used by one US presidential candidate, a hint that the world’s biggest power may for once put environmental policy ahead of economics.

Some have questioned whether a renaissance of nuclear energy could threaten investment returns in Cleantech. Some argue that nuclear does actually represent a clean technology itself, but regardless, the reaction to recent UK announcements has shown that the political forces are very much at play, and whilst nuclear will continue to contribute to power supplies, political pressures look set to keep its contribution limited.

This raises an important point associated with future energy provision – energy is expected to come from a more diverse range of sources in the future – the so called ‘energy mix’, and there is a substantial market even if the ultimate contribution of Cleantech is to provide only a third of the worlds energy needs.

The other major force acting in the world today is global security and terrorism. This includes threats to Middle Eastern oil supplies which will exert inflationary pressure on oil prices. One reaction is that countries are looking towards alternative domestic energy supplies in order to assure energy security, which in many cases means weaning energy supply away from oil. Both of these reactions bode well for the Cleantech sector.

There may be sub sectors of Cleantech that are subject to technical difficulties or political resistance, but the sector as a whole is pushing forward on multiple fronts and where one technology fails, another is waiting in the wings to take its share. And as investments in these areas grow, so to will the strength of groups lobbying for their success.

Overall it seems that even if some of the props supporting Cleantech are removed, sufficient support will remain to ensure some momentum in the sector is maintained. So whilst the sector may not be immune from set-backs, the chances of a bust any time soon seems hard to fathom.