The oil-rich countries of the Middle East have some advantages in pursuing the “green” energy market. First, they have pools of investment capital they can turn to this purpose. Possibly more important than access to money is that the funding sources may be willing to take a longer term horizon and lower returns than US investors.
Second, diversifying out of oil is a strategic imperative for the Gulf, and energy is a logical target The US may aspire to leadership in this field, but it does not appear that we have a Manhattan Project or Sputnik response level of urgency.
Offsetting this is the fact that the area is not known as a breeding ground of innovation, but if the Gulf States can attract a critical mass of talent, they might be able to turn that around. The New York Times article describes that they are forming relationships with top schools such as MIT.
From the New York Times:
….even as President-elect Barack Obama talks about promoting green jobs as America’s route out of recession, gulf states, including the emirates, Qatar and Saudi Arabia, are making a concerted push to become the Silicon Valley of alternative energy.
They are aggressively pouring billions of dollars made in the oil fields into new green technologies. They are establishing billion-dollar clean-technology investment funds. And they are putting millions of dollars behind research projects at universities from California to Boston to London, and setting up green research parks at home.
“Abu Dhabi is an oil-exporting country, and we want to become an energy-exporting country, and to do that we need to excel at the newer forms of energy,” said Khaled Awad, a director of Masdar, a futuristic zero-carbon city and a research park that has an affiliation with the Massachusetts Institute of Technology, that is rising from the desert on the outskirts of Abu Dhabi.
These are long-term investments in an alternative energy future that neither falling oil prices nor the global downturn seems likely to reverse….
This new investment aims to maintain the gulf’s dominant position as a global energy supplier, gaining patents from the new technologies and promoting green manufacturing. But if the United States and the European Union have set energy independence from the gulf states as a goal of new renewable energy efforts, they may find they are arriving late at the party.
“The leadership in these breakthrough technologies is a title the U.S. can lose easily,” said Peter Barker-Homek, chief executive of Taqa, Abu Dhabi’s national energy company. “Here we have low taxes, a young population, accessibility to the world, abundant natural resources and willingness to invest in the seed capital.”…
To hedge their positions, then, an increasingly sophisticated generation of largely Western-educated leaders in the Middle East are seizing on green business opportunities, by seeding research in faraway nations.
The crown prince of Abu Dhabi, the wealthiest of the seven emirates that make up the United Arab Emirates, announced last January that he would invest $15 billion in renewable energy. That is the same amount that President-elect Obama has proposed investing — in the entire United States — “to catalyze private sector efforts to build a clean energy future.”
Masdar, the model city that will generate no carbon emissions, is tied to the crown prince’s ambitions. Designed by Norman Foster, the British architect, it will include a satellite campus of the Massachusetts Institute of Technology, as well as a research park with laboratories affiliated with Imperial College London and other institutions.
In Saudi Arabia, the new state-owned King Abdullah University of Science and Technology, or Kaust, gave a Stanford scientist $25 million last year to start a research center on how to make the cost of solar power competitive with that of coal. Kaust, now in its first grant cycle, also gave $8 million to a Berkeley researcher developing green concrete.
And it has other agreements as well, with Caltech, Cambridge, Cornell, Imperial, La Sapienza, Oxford and Utrecht, to name just a few.
In November, the Qatari government signed an agreement with Britain’s visiting prime minister, Gordon Brown, to invest £150 million, or more than $220 million, in a British low-carbon technology fund, dwarfing the fund’s investments from home…
“The impact has been enormous,” said Michael McGehee, the associate professor at Stanford who received the $25 million Saudi grant. “It has greatly accelerated the development process.”
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That’s okay. As we stand at the gas station, filling our tanks and wondering how the US will remain a wealthy country, we’ll come up with ideas. We’ll sell them T-bonds! And then default! Yeah, that’s the ticket….
And if they stop falling for that one we’ll convince them they need advanced military arms. They might believe that. Unless the world collectively asserts that they will defend the source of their energy…. Hmmmmmmmm.
Okay, if they don’t fall for that, we’ll sell them our daughters. The blonde ones will fetch a good price….
I merged-sold my clean technology to Europe. In my experience, I had three major problems doing business here.
1. There are no penalties to frivolous litigation. Anyone with more money and an axe to grind can use any contract as a pretext to spend you to death in court.
2. it is hard to do business to business deals. We all know what corporations are spending their money on. It is as if innovation and product development were anathema to US publically traded company’s business models. After all, if new products were available, that would force companies to spend their money on R&D in order to compete, rather than on paying CEO's, doing M&A, buying back their own stock, etc.
3. Investment in technology is narrow, with minimal interest outside narrow fields like computer-internet related and some biotech.
My hope is that this economic crash will make people realize that 12% guaranteed returns are too good to be true, and that people will put more thought behind where their money goes.
Florence is nice place because the Medici thought that what was important was, not how much money you made, but what you invested it in and how you spent it.
-Marc
“To hedge their positions, then, an increasingly sophisticated generation of largely Western-educated leaders in the Middle East are seizing on green business opportunities, by seeding research in faraway nations.”
Hasn’t an “increasingly sophisticated generation of largely Western-educated leaders” in the West just led the West into a disastrous collapse of its Financial System with other Systems (War, Health, you name it) increasingly suspect?
These “largely Western-educated leaders in the Middle East” must have gone to different Universities than the Greenspans, Friedmans, Bernankes, Bushes, Rubins, Paulsons, Cashncarries, etc.
Or maybe these students selected from the Elites of the Middle East to be educated in the West are simply Fools like their Western Elite Brethren. This seems the more likely given the facts before us.
It’s amazing what you can do when you’re a tiny authoritarian state with a lot of available cash. I’ll be more impressed when the 800 lb. gorillas among the Gulf States, Saudi Arabia, Iran, and Iraq, start getting into that game.
Big fan of this blog, and finally I feel inclined to comment on something I haven’t seen much discussion over.
The financial sector may be bloated, it may be a drag on the real economy, but it never could have become this way if it didn’t have such a large, vibrant economy to feed off of for so long.
In fact, I think a large positive to come from the financial crisis will be a freeing up of resources that have been crowded out for far too long. This is something i’ve seen very few people talk about directly.
Though I work primarily in technology, over the years I have come across many physicists, engineers, mathematicians, etc. that had “seen the light” and flocked to the financial industry. I wondered for years why I never did the same to add a zero (or 2, or 3..) to my salary.
I now shed a tear when I think of the scientific discoveries that have been foregone with this vast pool of talent being put to such disastrous use.
Regardless of how much capital the Gulf states pour into emerging technologies, the necessary and intangible resource that America has in abundance is entrepreneurship, and the ability to draw entrepreneurs from around the world. Hewlett-Packard was literally started in a garage, setting off a chain reaction that would create the cluster we know as Silicon Valley. Google was just a research project for two Stanford grad students, that was incorporated in, you guessed it, a garage. Initial capital: $1.1MM.
Of course it takes the economy many tries and much wasted capital before Googles and HPs form, but a mere million dollars can go a very long way when allocated appropriately.
Sounds like a great opportunity for western companies other than banks, engineering and oil companies to put their hands in some oil rich bedouins pockets.
As the sheiks send their children off to western schools they are apparently returning home with the GW catechism drilled into them and see this as the ‘next thing’. And it may well be if we are talking about the next bubble/boondoggle.
The only way sunlight can compete with coal or gas, even in the desert, for electricity generation is by imposing carbon emission constraints.
Atomic:
You beat me to the punch, so instead allow me to support your statements. FWIW, I work in academia as a research scientist in bioengineering.
Quoting from the article:
“The leadership in these breakthrough technologies is a title the U.S. can lose easily,” said Peter Barker-Homek, chief executive of Taqa, Abu Dhabi’s national energy company. “Here we have low taxes, a young population, accessibility to the world, abundant natural resources and willingness to invest in the seed capital.”
This is absolute baloney. Let's see here – the US came up with the semiconductor, which spawned the entire electronics industry from cell phones to computers to you name it. The US came up with the internet. The US was the first country to transfer genes from one organism to the another, thereby setting off the biotech revolution (which we remain world leaders in). The US came up with the GPS system. The US came up with very innovative weapons systems like UAVs. And now the US is a leader in the fields of nanotechnology, metamaterials, and stem cell research (Bush definitely didn't help on that one). Even today, what foreign companies can compete with the likes of Apple, P&G, Exxon and many others, which are some of the best and most innovative in the world?
My opinion is that the US is and will continue to be the most innovative and entrepreneurial country in the world, and it's not so easy for other countries to pick up this trait because our culture and values and system are absolutely essential to this process.
We're going through lots of pain right now with our economy, but our culture of innovation is why I believe the US will remain world leaders in many fields, such as green tech, once the world recovers from our collective economic mess.
Separately but not too off-topic I think – our culture of innovation is also why I'm actually relishing our downturn. It seems like marketing had a lot to do with our good times for the last 20 years or so, but with the economy turning south, actual ideas and products will become key again, not marketing of said products. My colleagues and I are chomping at the bit at the chance to come up with these new ideas and products, so we're looking at our present situation as an opportunity to do lots of great things
To the guy above, the Greeks came up with everything from logic to sodomy, look up where they are at now – an ex-communist country with a dying population.
Every country gets their turn to have a stab at the forefront of humanity. Not that I am particularly fond of the Arabs, but they deserve a change. If they got 15 billion to burn and a cause that doesn’t have to do with spreading the glory of Allah then I am all for it.
A lot of this talk of America came up with this and that … blah blah … innovation seems like gloating on the past.
You are all correct that the US has an entrepreneurial culture found nowhere else. Which means we will have the best chance of finding the replacement for oil — provided we actually try.
The main reason we went to the moon was because we were worried the Russians would get there first. The reason so many talented people spent so much time creating crazy financial products, is that we have had no external competitors forcing us to get real.
The one thing that will make sure we actually sit down and create things is the perception that we might lose a race to someone else. The gulf states fit the bill nicely.
“Dave Schuler said…
…I’ll be more impressed when the 800 lb. gorillas among the Gulf States, Saudi Arabia, Iran, and Iraq, start getting into that game.”
First Iraq gets back its electricity, then gets back its 4M in refugee flight, then retrains all its professors assassinated and fled post-2003, then tries to recover its archaelogical heritage, then gets back basic police order…gorilla??
“My opinion is that the US is and will continue to be the most innovative and entrepreneurial country in the world, and it’s not so easy for other countries to pick up this trait because our culture and values and system are absolutely essential to this process.”
I thought it was because USA beat Europe to New Deal by 20 years and I thought USA is now behind Europe because of corporatist individual culture. What are these values and culture and system that unlock tech innovation?? Access to venture cap is/was best in the world? Anything else? I get the impression the USA once had the best culture of innovation on Earth, but now stomped by Northern Europe. For example an entrepreneur in Holland won’t lose their business because of medical bills.
@anonymous:
“Every country gets their turn to have a stab at the forefront of humanity. Not that I am particularly fond of the Arabs, but they deserve a change. If they got 15 billion to burn and a cause that doesn’t have to do with spreading the glory of Allah then I am all for it”
OK, I’ll pay for your one-way ticket to any of the Gulf States but you’ve got to promise not to kiss on their beaches, OK?
@anonymous 11:01
Don’t confuse me me for a chest-beating wrapped-in-the-flag republican here. I am in fact Canadian, a country where anti-Americanism is a national pastime. But having spent a few years in California, and recently moving back to Toronto, a few things became obvious to me.
One, a sound financial system and fiscally responsible government do not necessarily create a vibrant economy. Canada has weathered the financial storm quite nicely, our financial institutions needed no bailout and almost as if by attrition are climbing the rankings of highest financials by market cap. Until recently, most levels of government posted large surpluses.
But I have more faith in the American economy. I doubt Canada will ever escape being tied to the fortunes of other economies through their need for raw materials. Why?
All levels of government seem to have a desperation to spur innovation. Left and right-leaning institutes have all kinds of theories; either taxes are too high, or we’re not building enough bike paths to lure the hipsters, or we’re not being inclusive enough of minorities, etc. etc. The real problem is that when I talk to an average Canadian, or American, about an idea that I have, however outrageous, in general the attitude here is one of contempt, mocking or indifference. In the US, most people will humour you, and maybe even brainstorm. Of course these are broad generalizations, but I’m talking about culture, something inherently difficult to quantify.
In California I can’t think of a single “innovation and entrepreneurship” institute, yet entrepreneurs are everywhere. Who needs an institute when all you need to do is talk to people?
In Canada we have lots of academics and politicians telling us what we need to be innovative, what we lack are innovative people. And so we’ll continue to invest in some of the best universities on the continent and pour public money into useless programs and watch as the brightest Waterloo students get plucked by Google and Microsoft, the top medical professionals from McGill move south, etc.
I don’t have enough experience with the Gulf states to make an informed comment, but I do know that no amount of money can buy an innovative culture.
Well, Saudi Arabia, one of the proverbial 800 lb gorillas, is one of those countries.
But the emphasis of the story is odd, the oil producing nations want a share in the new technology, but they do not want to kill their golden goose–oil and gas.
They want to know what to expect, when to expect it, and (maybe) how to kill it before it gets here, but (certainly) know how to schedule it so that their profits are maximized.
Riyadh may be complaining about the low price of oil, but think of all the biodiesel plants that are having a hard time finding financing to get them through this current turmoil and you might have a better sense of the view from there. It’s almost as if the global financial industry took on the global oil industry and … lost!
Who woulda guessed it?
This is Anon @10:08
Anon @11:01 said:
"To the guy above, the Greeks came up with everything from logic to sodomy, look up where they are at now – an ex-communist country with a dying population."
Yes, good counter-example. Only time will tell of course.
"Every country gets their turn to have a stab at the forefront of humanity. Not that I am particularly fond of the Arabs, but they deserve a change. If they got 15 billion to burn and a cause that doesn't have to do with spreading the glory of Allah then I am all for it."
I agree with this too, but the Gulf States do not currently put out cutting-edge research. Thus, where will the change come from? Lots of money only gets you so far. I will become more convinced of this if I see more structural changes in their society, for instance a strong university system and allowing for the free exchange of ideas without recrimination, all of which will take time. This can certainly be done – Brazil had made great strides in several fields such as ag biotech for example – but I myself would wait to see more proof coming out of the Gulf States before I believe they they overtake the US in green technology.
"A lot of this talk of America came up with this and that … blah blah … innovation seems like gloating on the past."
I'm sure people said the same thing about the US when the Russians were first into space. Now look at how things things turned out. Innovation sure wasn't a "thing of the past" in the 50s and 60s, and it isn't now. Innovation is as critical today as at anytime in history, and the US has a tremendous amount of it.
Phillip Huggan @11:07 said:
"I get the impression the USA once had the best culture of innovation on Earth, but now stomped by Northern Europe."
I disagree. Again, my examples are companies like Apple, Intel, Google, Exxon and P&G. There are certainly some, but few foreign companies match these companies in terms of innovation. For example, last I checked Europeans were buying iPods and iPhones conceived and designed in the US, not in Northern Europe.
"For example an entrepreneur in Holland won't lose their business because of medical bills."
On this issue, I agree completely. At the same time, there's less chance an entrepreneur in Holland will create the next Google.
To both Anon@11:01 and Phillip Huggan: are either of you two in scientific research? I do, and a lot of my optimism stems from seeing all the possibilities out there right now. The research being done throughout the world – not just in the US – is absolutely amazing. My favorite example here is metamaterials and the possibility of an invisibility cloak. I believe, however, that the US will be at the forefront of turning these ideas into products and companies because we have a system here, from our entrepreneurial spirit to funding mechanisms to expertise, that is the best in the world.
The gulf states will never be on the cutting edge of anything. OK, never is a long time, but I’ll place my bet on the US.
The American culture is the best thing we have going for us, and although it is changing with everyone looking to the government for answers, in the long run this is entrepreneurial paradise.
The question that leaped out to me is why would they invest in green tech thus undercutting their current revenue stream of oil?
Perhaps they see the end of oil being reflected in the real estimates of reserves they look at instead of the estimates they report.
If there is an 800 lb gorilla in this article it should be that. I also support the notion that we will continue to be ahead of the curve in innovation for green tech. We have to be and we still have the educational infrastructure pumping out graduates that need work and a direction. Don’t lower the flag over America yet.
Yves,
as always, The Onion predicted this awhile ago:
http://www.theonion.com/2056-06-22/news/6/
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