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61–638 2010

GREEN CAPITAL: SEEDING INNOVATION AND THE 

FUTURE ECONOMY 

HEARING 

BEFORE THE

SELECT COMMITTEE ON 

ENERGY INDEPENDENCE 

AND GLOBAL WARMING 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

APRIL 16, 2008 

Serial No. 110–33 

( 

Printed for the use of the Select Committee on 

Energy Independence and Global Warming 

globalwarming.house.gov 


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SELECT COMMITTEE ON ENERGY INDEPENDENCE 

AND GLOBAL WARMING 

EDWARD J. MARKEY, Massachusetts, Chairman 

EARL BLUMENAUER, Oregon 

JAY INSLEE, Washington 

JOHN B. LARSON, Connecticut 

HILDA L. SOLIS, California 

STEPHANIE HERSETH SANDLIN, 

South Dakota 

EMANUEL CLEAVER, Missouri 

JOHN J. HALL, New York 

JERRY MCNERNEY, California 

F. JAMES SENSENBRENNER, JR., 

Wisconsin, Ranking Member 

JOHN B. SHADEGG, Arizona 

GREG WALDEN, Oregon 

CANDICE S. MILLER, Michigan 

JOHN SULLIVAN, Oklahoma 

MARSHA BLACKBURN, Tennessee 

PROFESSIONAL STAFF

GERARD WALDRON, Staff Director 

ALIYA BRODSKY, Chief Clerk 

THOMAS WEIMER, Minority Staff Director 

JONATHAN PHILLIPS, Professional Staff 


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C O N T E N T S 

Page 

Hon. Edward J. Markey, a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 1 

Prepared Statement ......................................................................................... 3 

Hon. F. James Sensenbrenner, Jr., a Representative in Congress from the 

State of Wisconsin, opening statement .............................................................. 5 

Hon. Earl Blumenauer, a Representative in Congress from the State of Oregon, opening statement ...................................................................................... 6 

Hon. Jay Inslee, a Representative in Congress from the State of Washington, 

opening statement ................................................................................................ 7 

Hon. Emanuel Cleaver II, a Representative in Congress from the State of 

Missouri, opening statement ............................................................................... 7 

Prepared Statement ......................................................................................... 8 

Hon. John Hall, a Representative in Congress from the State of New York, 

opening statement ................................................................................................ 9 

WITNESSES

Mr. David Prend, Co-founder and Managing General Partner, RockPort Capital Partners ......................................................................................................... 10 

Prepared Statement ......................................................................................... 13 

Answers to Submitted Questions .................................................................... 60 

Mr. Dan Braun, Director, Global Environmental Finance, Stark Investments . 19 

Prepared Statement ......................................................................................... 21 

Answers to Submitted Questions .................................................................... 79 

Mr. Daniel R. Abbasi, Director, MissionPoint Capital Partners .......................... 25 

Prepared Statement ......................................................................................... 26 

Answers to Submitted Questions .................................................................... 85 


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GREEN CAPITAL: SEEDING INNOVATION AND 

THE FUTURE ECONOMY 

WEDNESDAY, APRIL 16, 2008 

HOUSE OF REPRESENTATIVES, 

SELECT COMMITTEE ON ENERGY INDEPENDENCE

AND GLOBAL WARMING, 

Washington, DC. 

The Committee met, pursuant to call, at 2 p.m., in room 210, 

Cannon House Office Building, Hon. Edward Markey (chairman of 

the Committee) presiding. 

Present: Representatives Markey, Sensenbrenner, Blumenauer, 

Inslee, Cleaver, and Hall. 

The CHAIRMAN. This hearing is called to order. Today, as President Bush gets ready to tell America that he has come around on 

global warming and that he supports freezing U.S. global warming 

pollution 17 years into the future, we welcome a group that does 

have the vision and ambition to seriously address this problem. 

These individuals probe the technological trenches of Silicon Valley and other innovation hot spots to find the solutions that will 

solve the energy and climate crisis. They pull the strings of capitalism, enabling ambitious young geniuses to turn today’s dreams 

into tomorrow’s technological realities. 

Venture capitalists play a key role in innovation. The $26 billion 

in U.S. venture capital investment in 2006 represented less than 

one percent of U.S. GDP, but the $2.3 trillion in revenues these 

firms generated made up 18 percent of U.S. GDP. Venture capitalbased companies employed over nine percent of the U.S. private 

sector workforce. And job growth in these companies is occurring 

at nearly three times the rate of the rest of the private sector. 

The corporate behemoths that dominate the business pages are 

mostly mature companies. They face fierce competition that often 

forces them to outsource manufacturing in order to stay competitive, but low-wage developing countries cannot compete with an innovative economy. 

We should salute the American entrepreneurs that for decades 

have pushed the American economy to the technological edge, 

where wages and growth are high. The challenge today is to channel these creative energies to help solve our global warming problems and to help put the economy back on track. 

Governments can take two approaches to solving great technical 

challenges, like reducing global warming pollution. They can prescribe the answer; for example, by massively subsidizing nuclear 

power generation, as President Bush supports, or they can set a 


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target and leverage the creative genius of the innovators of the 

world to find the answers. 

The first is to cling to the technological past. It also means compliance at the highest possible cost. That approach is akin to investing in a candle-maker because Thomas Edison’s light bulb will 

never catch on. It is like doubling down on mainframes because you 

don’t believe many people will want computers at their desks. 

We don’t know what all the answers will be to the global warming problem, but investing taxpayers’ dollars on yesterday’s technologies will ensure that the world’s innovators will have to look 

outside the United States to find the markets they need to develop 

tomorrow’s innovations. And that will not be good for us. This is 

something that we cannot afford. And this hearing will help us to 

find a path that will take us down a different road. 

That completes the opening statement of the Chair. I now turn 

to recognize the ranking member, the gentleman from the State of 

Wisconsin, Mr. Sensenbrenner. 

[The prepared statement of Mr. Markey follows:] 


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Mr. SENSENBRENNER. Thank you very much, Mr. Chairman. 

There is no disagreement about whether jobs created by investments in renewable energy are good. Of course, these types of investments will help the economy. And I am glad to see that venture capitalists and other private financiers are taking an interest 

in alternative energy, but these investments will help the economy 

most if they are created through free market decisions. 

Costs of renewable energy are going down. And more communities will make investments in these types of technologies because 

they offer many benefits. 

In some places, renewable energy is a great option for electricity 

production. In other places, renewable energies aren’t as effective. 

And I am concerned that mandates will create unnecessary expenses that will only slow the economy. 

One need look no further than Congress’ ethanol requirements to 

see the effects these energy mandates can have on the economy. 

Just yesterday the New York Times reported that Congress’ mandate for a fivefold increase in biofuels, namely ethanol, was helping 

drive food prices so high that they are causing unrest and even 

riots in some places. And gasoline is still as expensive as ever. 

I agree with what we will hear from today’s witnesses that tax 

credits can help spur the investment in new technology, which I believe is a key principle for any climate change policy. And I support 

extending these credits and, in the case of the R&D credit, making 

it permanent. 

While our witnesses today will tout the benefits of renewable energy, they will also claim that without government mandates and 

regulations, renewable energy will not see significant share in the 

marketplace. Venture capitalists are famous for the risks they 

take, but that doesn’t sound too risky to me. 

I am skeptical of both the need for regulation and mandates and 

the idea that renewable energy won’t expand without government 

assistance. I am especially skeptical of the idea that a mandatory 

cap and trade system is needed to bring about this sea change in 

energy production. 

There are at least four reports analyzing the economic effects of 

the leading cap and trade bill in the Senate. And all forecast fewer 

jobs and slower economic growth in the future, all at a time when 

the economy is slowing down. 

While it is true that alternative energy will create some jobs, the 

burden the cap and trade regulation will put on this economy will 

sap away many more. The EPA’s model showed that by 2030, cap 

and trade could cost the U.S. economy nearly a trillion dollars in 

GDP. That should give any legislator great pause before deciding 

to support cap and trade, but it seems like some in Congress want 

to rush the U.S. economy into this flawed system. 

One of our witnesses today, Mr. Daniel Braun, who also happens 

to be my constituent, warns lawmakers that a cap and trade system must be ready before it is rolled out. While I disagree with 

Dan about the need for a cap and trade system, he seems to have 

his own concerns about the speed in which Congress is rushing into 

this process. I do agree with Dan about the need to make the tax 

credits permanent, and I welcome him here today to testify. 


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Another concern that I have with cap and trade is that it fails 

to produce tangible, measurable results to the environment. Europe 

rushed together a cap and trade system. And, despite that, emissions are still rising there. 

While the U.S., without a mandatory cap and trade system, saw 

a one percent drop in emissions last year, Europe’s emissions rose 

1.1 percent. Since the U.S. is not seeking to emulate these results, 

I can’t see why we would want to adopt the same system. 

I believe alternative energy technology can help us make great 

strides in confronting climate change. And I support advancing 

these technologies but not through heavy-handed government mandates that will cause far more economic pain without delivering 

any environmental gain. 

I thank the Chair and yield back the balance of my time. 

The CHAIRMAN. Thank the gentleman. The time has expired. 

The Chair recognizes the gentleman from Oregon, Mr. 

Blumenauer. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. 

I apologize in advance. I am going back and forth from the markup. I think you are also. But I am keenly interested, and I have 

had a chance to review the testimony. I am going to take in as 

much as I can. 

This is one of the most important aspects of our work on climate 

change. Our witnesses here today can help provide some guidance 

about how public policy can help influence the billions of individual 

decisions that we all make every day as consumers, government 

agencies about where we shop, how we move, where we live, what 

we buy. 

And being able to target, harness market forces to move in the 

right direction, to make it easier and less expensive to do the right 

thing and perhaps a little less expensive for things that damage 

the environment I think is very important. 

With all due respect to my good friend Mr. Sensenbrenner, we 

are not rushing into this. We have an opportunity to build on the 

experience that we had with other markets that we have established in terms of dealing with acid rain. 

We can look at our friends in Europe. And, in fact, Mr. Chairman, with your leadership, we have had a number of them here before us to testify to what they would do different if they were involved in it. 

In 280 days, we are going to become a country that is no longer 

on the outside of this. We are going to be dealing with a carbonconstrained economy, no matter who is elected president. He or she 

is committed to a cap and trade or something of that nature. 

We have an opportunity, as we have done with our energy bills, 

to realign the massive subsidies that are buried right now in the 

tax code and government policy. There isn’t an invisible hand now, 

but listening to our witnesses, I think we can find ways to make 

that hand work better. And I look forward to the testimony and 

working with them to realign these policies. 

The CHAIRMAN. The gentleman’s time has expired. 

The Chair recognizes the gentleman from Washington State, Mr. 

Inslee. 


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Mr. INSLEE. Thank you. Thank you. Thanks to the witnesses for 

being here. 

You know, in about 12 minutes, we are going to hear a can’t do 

policy from the White House. In about six or eight minutes, we are 

going to hear I think a can do strategy from our three witnesses 

in our ability to really unleash the creative talents of Americans 

when you marry it up with the investment capital that is really 

waiting for the signals it needs to simply say that these new technologies need to have somewhere close to a level playing field. 

And right now because of some short-sightedness over the last 

several years in D.C., we have given all of the advantages to the 

old technologies by allowing them to put their pollutants into the 

atmosphere in unlimited amounts at zero cost. And we would never 

allow anyone to back up their garbage truck and dump it in the 

city park in unlimited amounts for free when a clean technology is 

available. That is what we are doing right now. We need to remedy 

that situation. 

And I think listening to our witnesses who are good enough to 

meet with us this morning with another group here, we are going 

to learn that there is enormous potential investment available with 

the right signals that can really skin this cat. And I appreciate it. 

I want to point out two Washington figures: Steve McBee, who 

is a leader in helping the U.S. economy, sitting back here; another 

great investor, Max Vekich from Cosmopolis Washington at one 

time, in any event. 

Thank you. I look forward to your testimony. 

The CHAIRMAN. The gentleman’s time has expired. The Chair 

recognizes the gentleman from Missouri, Mr. Cleaver. 

Mr. CLEAVER. Thank you, Mr. Chairman. Thank you for being 

here, members of the panel. 

I am in preparation of a meeting with the civic leaders in the 

metropolitan area of Kansas City, Missouri. And the subject of that 

meeting will be the subject of this hearing. And so I am very anxiously awaiting your testimony. 

The potential for green industry to benefit our country is unlimited, especially when you consider the hemorrhaging nature of our 

economy today. If the studies are correct and that green industry 

can create a half a million new jobs in the next two years, then this 

is where we ought to place a substantial portion of our capital. 

And as venture capital firms, such as those represented by those 

of you here today, invest in new and promising companies connected to the green industry, the benefit could be invaluable to 

Congress. And so I look forward to dialoguing with you further. 

I hate this disruption that is going to occur, but I will return. 

Thank you, Mr. Chairman. I yield back the balance of my time. 

[The prepared statement of Mr. Cleaver follows:] 


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The CHAIRMAN. Thank you, Congressman Cleaver. 

And we recognize the Congressman from New York, Mr. Hall. 

Mr. HALL. Thank you, Mr. Chairman. I will keep it short. 

The students at Arlington High School in Arlington, New York, 

Dutchess County, just came up with an idea to put solar panels on 

the roof of the new wing of their high school, which is being built, 

took the initiative to go to NYSERDA to get state funding and then 

came to our office and asked for help. 

Rather than waiting for the uncertainty of appropriation, I was 

able to find, my staff was able to find private grant funding for it. 

And we presented them with a check for $108,000 to complete their 

budget for that. 

Now, that is leadership coming from the next generation. And 

not only is that going on, but we have in district, in Orange County 

a private firm that is processing municipal solid waste from an entire town, which previously was being landfilled and now has taken 

it through this process, producing ethanol, gas that could be 

burned to spin a turbine and put the power into the grid, hydrogen 

that could be used from the gas because 48 percent of the gas they 

product is hydrogen so that they can charge fuel cells. And everything is being recycled and nothing is being put into the ground. 

And the total impact in terms of greenhouse gases from their process is 75 percent less than if they landfilled the same MSW. 

In Wappingers Creek where it enters the Hudson River, there is 

a small low-head hydro private facility that is generating a flat two 

and a half megawatts of base power from hydroelectric. It is just 

happening by itself. And the more investment there is available to 

try to spur it and to make it possible to people with the imagination and the will I think the faster it will come on board. So I am 

excited about it. 

I am excited to hear your testimony. I yield back, Mr. Chairman. 

The CHAIRMAN. Thank you, sir. 

The time for opening statements of the members has been completed. Unfortunately, while those statements were being made, 

four roll calls were called on the floor of the House, which will also 

include a recommittal motion, which means an additional ten minutes. 

So I think it would be wise for us to adjourn for approximately 

a half an hour so that we could return to this hearing. We apologize to our witnesses, but this is just the nature of the Congress. 

So we apologize. The Committee stands in recess. 

[Brief recess.] 

The CHAIRMAN. If we can reconvene? Thanks for joining us. We 

have three great witnesses today. I had the pleasure of getting to 

talk to them earlier this morning. First, David Prend is the Managing General Partner of RockPort Capital. David joined Salomon 

Brothers in 1990. He was promoted to Managing Director and 

headed the Global Energy Investment Banking Group in 1998. He 

co-founded RockPort Partners, a merchant bank specializing in energy and environmental sectors. In 2001, he founded RockPort Capital Partners, which is a venture fund. And today he is also testifying on behalf of the National Venture Capital Association, which 

we appreciate their great work. 


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We also have Daniel Abbasi, who leads MissionPoint’s regulatory 

and public policy research group. He is responsible for originating 

and structuring energy and environmental finance transactions. He 

was an appointee to the U.S. Environmental Protection Agency. He 

served as senior adviser to the Office of Policy. And he co-chaired 

the Strategy for U.S. Environmental Technology Initiative and 

helped to produce our first U.S. Climate Action Plan. 

He is the author of a great book, which starts with the quote ‘‘We 

are faced with the first urgency of now.’’ And that even is coming 

up in presidential debates. So people are listening to you. I hope 

you will tell us the name of your book. 

Dan Braun then joins us. He is the Director of Global Environmental Finance of Stark Investments. And we appreciate him 

clearing his calendar on short notice to join us. He is currently comanaging an investment portfolio, which is centered on the theme 

of global environmental finance and climate change. We are looking 

forward to at least five minutes of good thoughts. 

Mr. Prend, if you could start. 

Mr. PREND. Sure. Thank you, Mr. Chairman, members of the 

Committee. 

STATEMENT OF DAVID PREND, CO-FOUNDER AND MANAGING 

GENERAL PARTNER, ROCKPORT CAPITAL PARTNERS, ON 

BEHALF OF THE NATIONAL VENTURE CAPITAL ASSOCIATION, ACCOMPANIED BY DANIEL R. ABBASI, DIRECTOR, 

MISSIONPOINT CAPITAL PARTNERS; AND DAN BRAUN, DIRECTOR, GLOBAL ENVIRONMENTAL FINANCE 

STATEMENT OF DAVID PREND 

Mr. PREND. RockPort Capital Partners is a venture capital firm 

based in Boston and Menlo Park. Our funds comprise one of the 

largest pools of dedicated capital in the fast-growing sector of venture capital called clean tech. We manage about $400 million, and 

that amount is about to double. 

As was said, I am pleased to be here also on behalf of the National Venture Capital Association, which represents approximately 

480 venture capital firms in the United States and is committed to 

advancing those public policies that are conducive to entrepreneurship and innovation and U.S. competitiveness. 

Over our history, RockPort Capital has invested in about 40 companies spanning a wide range of innovations, including renewable 

energy, such as solar and wind; next generation transportation 

technologies, such as hybrid and fully electric vehicles; smart grid 

technologies that enable more efficient use of the existing electric 

generation capacity; clean air and water technologies; and energy 

conservation and green building technologies. 

I would like to start by saying that I think the outlook for continued growth and investment in the renewable energy sector is excellent. And it is driven by a number of factors, most important being 

the promise of exciting returns based on the innovation in this 

space. 

We are today in clean tech where the IT industry was about 35 

years ago and where the biotech industry was about 20 years ago. 


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And we are dealing in a much larger total market than either of 

those two markets. 

The key issue today is what the federal government and, in particular, Congress can do to help cultivate the environment for this 

innovation. From what I know about the market demand and the 

technologies and, most importantly, the road maps of a number of 

these technologies, this is going to happen, regardless of how intelligent the energy policy we have from the United States. 

So I think the challenge for the government is to come up with 

intelligent policies that foster a good transition to minimize the 

pain that this economy is going to face in this transition from old 

energy to new energy. 

These technologies make sense. Other countries are aggressively 

pursuing them with policies that foster innovation. And there are 

a number of examples where other countries have taken the lead 

away from the United States already due to more enlightened policies. 

So that is what we are really dealing with here in our humble 

view. It is not whether this is going to happen. It is where the U.S. 

is going to stand when this is all done. 

For the purposes of my oral testimony, I would like to just focus 

on a few of the policies, suggestions that I have provided in the 

written testimony. The first is the long-term extension of the renewable energy investment tax credits and production tax credits. 

We applaud the House for passing a very robust energy tax package. Ideally from the investment community, we would love to see 

these extensions over a long period of time, but I think we recognize the difficulty in longer-term credits from a budget point of 

view. However, I am here to urge you strongly to reach a compromise on the two bills and get a bill signed into law without 

delay. 

I can cite several examples from my own portfolio companies 

where young, fragile companies that are doing good things for the 

economy and creating jobs in this economy are having to already— 

and, fortunately, small companies are good at being nimble—having to turn on a dime and move from sales in the United States 

to sales in places like Spain and Korea because of the uncertainty 

about the ITC. 

Another important area is the national renewable energy standard, which I would recommend in the range of 20 percent, combined with decoupling of utility revenues to disconnect the utilities’ 

incentive to get profits from increasing kilowatt hour sales. What 

we would really like to see is energy efficiency and not penalize the 

companies for this saving energy. 

Third, transportation I think is very important. Rather than favoring just biofuels I think encouraging a results-oriented approach, we, in particular, have four investments in the areas of 

electric drive train and hybrid vehicles. 

Even with the very meager subsidies that there are right now for 

those technologies, those technologies make a lot of sense from a 

marketplace, even without some intelligent incentives. If nothing 

else, just the CAFE standards helps to level the playing field 

among technologies, rather than favoring one type of transportation technology over another. 


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Fourth, I would like to highlight R&D spending. I serve on the 

Advisory Board of NREL, the National Renewable Energy Lab. 

And, in fact, two of our most promising companies use technologies 

that were not developed at NREL, but the expertise that was resident at NREL was substantially helpful in actually getting these 

technologies to the place where they are at market. One of them 

is in the market today and doing very, very well. The other one is 

about to launch an exciting new product in the solar space that I 

think is going to revolutionize the solar industry. 

The Chairman earlier noted the tremendous impact that venture 

has on job growth and the economy. And I think the energy industry today is a new market opportunity, where innovation has the 

opportunity to create even more jobs and more exciting opportunities for people than these previous examples of success in the venture capital community. 

Every single clean tech company that we invest in today holds 

a promise of bringing a much-needed innovation. When that happens, there are many winners. Our investors are definitely winners; entrepreneurs; and more importantly, the American public, 

who will benefit from new jobs, new companies, and a cleaner environment. For a venture capitalist, it is definitely the intersection 

of the best of all worlds. We can do well by doing good. 

Thank you very much for the opportunity to testify. And I look 

forward to answering your questions. 

[The prepared statement of David Prend follows:] 


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Mr. INSLEE [presiding]. Thank you, Mr. Prend. And, just so you 

know, everything you said the Chair totally agrees with you. So 

that is bonus you will get. That is why you had additional time. 

Mr. Braun. 

Mr. BRAUN. Thank you, Mr. Chairman and members of the Committee. 

STATEMENT OF DAN BRAUN 

Mr. BRAUN. It is truly a great honor to be here today to discuss 

federal policy measures that will enhance investment in clean energy technology. 

Before I begin my testimony, I would like to just take a moment 

to acknowledge Ranking Member Sensenbrenner. As he mentioned 

earlier in this conversation, he is my hometown congressman. I 

want to thank him for service to the Wisconsin 5th. 

Mr. INSLEE. He did some great job for the country in India. You 

should compliment him. We went there, met the Dalai Lama. And 

he made some very eloquent comments about Tibetan religious 

freedom. 

Mr. BRAUN. Excellent. A little bit about Stark Investments. We 

have got more than 20 years of experience. And over that time, we 

have grown to become one of the largest alternative investment 

firms in the industry, currently managing approximately $14 billion. 

In my role as portfolio manager, my job is to allocate financial 

capital in alternative energy technology, among other investments. 

My focus is to explore the financial implications of living in a carbon-constrained world. Over the last several years, the Stark team 

has allocated capital to alternative energy investments in both public and private markets. 

I would like to focus my testimony today on four major issues. 

And I will get through this quickly so we can get to questions. First 

is the connection between federal energy legislation and capital 

market engagement. Second, I will be addressing the need for an 

unencumbered price signal for carbon. Third, I will deal with market uncertainty. And, finally, I will touch upon some of the lessons 

learned from the European Union emission trading scheme. 

First, the recently signed energy bill and future legislative efforts 

by this body to regulate greenhouse gas emissions will directly affect capital market allocation. With regard to potential CO2 emissions reduction program, all eyes are on Washington. The Congress 

has been working pragmatically to pass climate change legislation. 

It is also significant that today President Bush just finished presenting his ideas on dealing with these types of issues. 

Institutional investors, like myself, are watching this activity 

closely because we will only be able to engage if there is a clear 

legislative mandate, a point that we discussed earlier today. Second, if Congress is interested in the full engagement of the capital 

markets, the most powerful action this body can take is to set a 

hard physical limit, or cap, on CO2 emissions and mandate a longdated tax credit and loan guaranty portfolio for clean energy solutions in addition to cap and trade. It needs to be a combination of 

short-term and long-term solutions. 


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The most important aspect of a capital market solution is the 

idea of an unencumbered price signal. Cap and trade markets with 

artificial price conditions, safety valves, off-ramp conditions will ultimately distort the price signal for greenhouse gas emissions and 

make it difficult for investors to engage completely. 

Using the basics of supply and demand, we know that a market 

clearing price will lead to the best use of financial or technological 

resources. Any artificial price condition disrupts that very simple 

balance. 

Third, I would like to address the issue of market uncertainty. 

I have listened to policy-makers and stakeholders talk about market-based solutions. And having encountered both fact and fiction, 

one common theme is that volatility is a bad thing. In fact, some 

degree of volatility is characteristic of a properly functioning market. The price of a financial asset or liability is very important information to institutional investors. 

We also heard from skeptics that there is free money to be made 

by financial players investing in alternative energy under a cap 

and trade system. I can only wish that was the case. On the contrary, private sector investors will apply financial resources to investments that will use a return as a function of risk. In simple 

terms, new technologies are extremely risky investments. We run 

a great risk of being wrong. 

Finally, I would like to discuss lessons learned from the first 

phase of the EU–ETS. The over-allocation of credits in the learn 

while doing first phase of the program caused financially trading 

credits to expire with negligible value. 

To those that use that argument to say that cap and trade does 

not work, I would suggest, to the contrary, the market considers all 

available information to arrive at a price. It is worth noting that 

the second phase of the EU–ETS has seen relatively stable prices 

because there was not this issue of over-allocation of credits. 

In conclusion, a necessary element involved here is the trust that 

capital markets will work. The commoditization of carbon dioxide 

emissions is not without precedent. We now trade greenhouse gas 

emissions that resulted from the 1990 amendments to the Clean 

Air Act. If done correctly, investors will fully engage in creating the 

solution set. The mandate of the capital market is to assume the 

risk of developing and commercializing nextgen alternative energy 

technologies so taxpayers don’t have to. 

As we move beyond politics and money, we will see that this is 

a partnership between capital markets and Washington that is capable of achieving sustainability, energy security, and a low-carbon 

global economy. 

I respectfully submit my testimony to the public record, look forward to answering questions, or providing further comment. Thank 

you, Mr. Chairman. 

[The prepared statement of Dan Braun follows:] 


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Mr. INSLEE. Thank you, Mr. Braun. 

Mr. Abbasi. 

STATEMENT OF DANIEL ABBASI 

Mr. ABBASI. Good afternoon, Mr. Chairman and members of the 

Committee. My name is Dan Abbasi. And I am a Senior Director 

with MissionPoint Capital Partners, which is an investment firm 

in Norwalk, Connecticut that is exclusively focused on financing 

the transition to a low-carbon economy. 

The Committee requested our perspective as clean energy investors on the outlook for the renewable energy industry and what 

policies, including what carbon regime, would best promote deployment and innovation. 

So I appreciate the opportunity to summarize my testimony to 

the Select Committee at this important moment in national policymaking on these issues and would ask that my written testimony 

be submitted for the record. 

Mr. INSLEE. So ordered. 

[The prepared statement of Daniel Abbasi follows:] 


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Mr. ABBASI. MissionPoint Capital was founded and is chaired by 

Mark Schwartz, former Chairman of Goldman Sachs (Asia) and 

CEO of Soros Fund Management. Our team has deep energy and 

environment domain expertise based on senior roles in finance, 

technology, policy, and operations at such firms as General Electric, ABB, SwissRe, United States Environmental Protection Agency, Key Span, and FMC. 

Our carbon-centered investment thesis is really grounded in two 

convictions: first, that unabated climate change is the greatest foreseeable risk facing humanity today; and, second, that mitigating it 

constitutes one of the greatest investment and job creation opportunities in history. 

Evidence indicates that climate change is accelerating, even to 

the point of routinely astonishing field scientists. And MissionPoint 

aims to respond by accelerating in turn the formation and deployment of capital to reduce emissions in the window that remains 

open to us to avoid the most severe impacts of climate change. 

At MissionPoint we are investing hundreds of millions of dollars 

in private companies that can generate clean energy and carbon 

emissions and taking an active role in building those companies. 

Examples include solar development and technology companies, including one called SunEdison; a wind operations and maintenance 

services company called UpWind; a specialty finances company 

called Hannon Armstrong, which is overcoming financing obstacles 

to energy enhancements, including in the federal government; a 

carbon offset development and finance company called Greenhouse 

Gas Services, which we have launched with General Electric and 

AES; a carbon trading infrastructure company, a company called 

Advanced Aerofoil Technologies, which manufactures advanced turbine components to increase efficiency at natural gas plants and 

also offers software that optimizes operation of gas and coal plants 

reducing fuel use as well as emissions. 

So we believe that mitigating carbon is primarily a commercialization and adoption problem, not an innovation problem, 

meaning that the technologies in many cases are already in existence and simply need to be pulled through into widespread usage. 

This belief leads us to focus less on new venture investing that we 

do venture investing when we find exceptionally transformative opportunities and innovations but really more on growth stage companies. 

So fundamentally we believe that the energy sector is in the 

midst of a profound transformation. The two primary criteria we 

used to demand of our energy were that it be cheap and reliable. 

And now today we have added, really, two more, which are secure 

and clean. 

So optimizing that four-dimensional equation really does change 

things. It requires us to bring new levels of entrepreneurship to the 

energy sector than it has really ever seen before. 

Renewable energy is thriving with 20 to 40 percent year over 

year compound growth rates because it answers well to the two 

new criteria, secure and clean, and is getting much more competitive on the first two: cheap and reliable. It is becoming more affordable as it scales. 


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The declining cost curves are a robust trend. We are seeing potential for grid parity, for solar, unsubsidized solar, as soon as 

2015. Renewables are also achieving high reliability with added experience and operating hours. 

So key point number one from us is really that our outlook for 

growth investment in job creation in the strategic industry is bullish based on direct hands-on experience with our portfolio companies as well as on high industry growth rates and on the strategic 

value of the industry on the dimensions I have mentioned. 

I would expect that the job creation potential here would be particularly welcome given the economic conditions in our country 

today and would just add there that the renewable industry is particularly job-intensive. For example, one megawatt of solar produces according to some studies on the order of seven to ten times 

the number of person-hours of employment as one megawatt of conventional power. 

Key point number two—and here I am underscoring what the 

prior panelists have said—is that our ability to continue to invest 

in realizing this bullish forecast and accelerating the growth of this 

industry really does depend on a comprehensive and stable set of 

supportive policies, including a long-term extension of the investment and production tax credits that remain in limbo today and, 

at long last, putting a price on carbon as a rule of the road, which 

we believe will just be enormously catalytic. 

So first on the investment tax credit and the production tax credit, the boom-bust cycle of expiration of these credits has historically 

driven a clear drop-off in renewable power installations. Those of 

us in the industry spend time estimating, underwriting, and trying 

to share the extension risk around these credits, pondering the 

imponderables of whether and when Congress may act. 

And the compromised one-year extension cycles really don’t give 

enough time to get a wind project placed into service, let alone 

something like a geothermal project. So we can’t underwrite business plans in these situations. 

Once it is operating, the ten-year horizon of the production credit 

is not always sufficient to provide the needed return on these capital-intensive projects. So, really, Congress does need to send a 

stronger, more stable, and long-term signal to the investment community. The durations really should be matched to the long project 

life cycles as well as the long project cash flow durations. 

So it is pretty straightforward. Uncertainty in the financial world 

translates to higher costs of capital, which translates to project is 

delayed or canceled. And by one estimation, the current expiration 

risk is putting at risk 42,000 megawatts of new construction. 

One of our portfolio companies, SunEdison, is an example of a 

company whose innovative deployment model for solar power has 

counted on the ITC in these early years but that is rapidly scaling 

the industry down its cost curve by deploying solar systems on 

Wal-Marts, Kohls, other big box retailers and other commercial entities. 

So we hope you can navigate the pay-go face-off between the oil 

and gas and renewable industries and get this done soon. The faceoff is somewhat ironic to us because it really underscores that both 

industries are, in fact, subsidized. 


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And also the way that we think about the climate change narrative is that it is really not between these industries. In fact, we 

believe we are going to have to continue to invest in the fossil fuel 

sector but do so in a way that aggressively manages the carbon liability in the decades ahead that they will be with us. 

The low-carbon playing field, both the policy and investing, is 

much bigger than renewables. The way to stimulate this is to make 

sure that the stable policy framework is built on a foundation of 

carbon pricing. We believe this should be through a cap and trade 

system. 

Putting a price on carbon will reward investments in companies 

like Advanced Aerofoil Technologies, which reduce emissions to fossil fuel power plants. And, you know, we would acknowledge that 

these kinds of investments are not as iconic or photogenic as the 

large and centralized carbon flows that we see in these large fossil 

fuel assets and reducing them, but it is very important that we address them. 

Mr. INSLEE. Mr. Abbasi. 

Mr. ABBASI. Yes? 

Mr. INSLEE. I want to make sure we get to some questions. 

Mr. ABBASI. Yes. 

Mr. INSLEE. So maybe you could wrap up. 

Mr. ABBASI. Yes, I will wrap up. 

So, in conclusion, we also believe that the carbon capture and 

storage industry is strategic in this, but it is, relatively speaking, 

a pure play investment and does require a price on carbon. And we 

would encourage you to do that. 

The U.S. is right now the runaway leader in moving and compressing and injecting carbon dioxide. It is a critical technology. 

And we would like to see the price on carbon facilitate that. 

Concluding, just our quick design points are we would prefer cap 

and trade over carbon tax. We would prefer a stringent emissions 

target with a prompt start by 2010, a periodic reassessment provision that is based on objective indicators and an upstream point of 

regulation. We also have some contributions, some ideas about the 

carbon border levy and will look to discussing those in the questions. 

Thank you very much. 

Mr. INSLEE. Thank you. And Mr. Abbasi has some other great 

ideas in his book, Americans and Climate Change, that he has authored, which is on the Chair’s nightstand. So I appreciate that. 

Mr. ABBASI. Thank you. 

Mr. INSLEE. I would like to start with Mr. Blumenauer. I had a 

chance to question you this morning. Mr. Blumenauer, would you 

like to start? 

Mr. BLUMENAUER. Thank you, Mr. Chairman. And I appreciate 

that our witnesses have more information here than they have a 

chance to do. And I appreciate your courtesy because I am in a 

markup in Ways and Means across the way. 

I guess I am concerned about putting three things on the table 

and because there won’t be time, really, to elaborate on them now. 

It is something that I would like to follow through with you folks 

on. 


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One, I haven’t heard you mention the opportunities to adjust how 

we regulate electricity and other utility rates. As you know, some 

utilities around the world are looking at having part of the rate of 

return contingent on carbon performance and other indicators. I 

have got a hometown utility that pioneered decoupling so that the 

gas utility wasn’t penalized for conservation. 

But I am interested if you could help us with thoughts, ideas 

about how we might use innovative regulatory schemes to incent 

utilities, to allocate costs in the right way, and that it might provide an incentive for the adoption of new forward-thinking and advanced energy technologies that we embed that in the rate regulatory system so it happens automatically and they are awarded 

more appropriately allocated costs. And it is a conversation I would 

pursue with any of you individually. 

The second concern I have—and Mr. Abbasi referenced it—in the 

Ways and Means Committee, we have tried to shift subsidies from 

a mature oil industry that has proven that they can make lots of 

money selling the world’s most profitable commodity, expensive 

commodity, to shift it in other areas, the extent to which we could 

have your help fine-tuning ways that other subsidies might be reallocated so that the tax code is more even-handed. 

The third area that we would be keenly interested in thoughts 

and observations is how the federal government could lead by example. I appreciate what you say in terms of being thoughtful 

about the regulatory scheme. You know, we are trying to embed 

the production tax credit in the next stimulus package because we 

are going to lose jobs if we don’t do that. 

But the federal government as the largest landlord, landowner, 

and employer, and consumer of energy has an opportunity to practice the best practices by our own, the products that we buy, the 

standards that we set, and would be keenly interested in your 

thoughts and observations about how we might be able to use the 

vast power of the federal government itself, the Department of Defense General Services Administration, to achieve that. 

I have got a couple of more minutes here that I would turn over 

to you folks for any thoughts or observations on it. But my staff 

and I would love to follow up with you in greater detail on those 

three points as you see fit if somebody wants to jump in. 

Mr. PREND. Sure. I will take the first one: regulating electricity. 

I think that that is a very good point. I applaud the utility in your 

home district. Decoupling is definitely something that I think gets 

at one of the big problems in energy industry right now, which is 

that there is this huge amount of invested infrastructure that any 

new technology and new business has to get over before it can 

thrive. And I would point out that a lot of that infrastructure was 

originally funded by a lot of government incentives. 

I think there are a number of ways to go about that. I think the 

trick, as you pointed out, is coming up with another way to make 

it profitable for the utilities to save energy, not just manufacture 

more energy. 

And one of the things that one of our portfolio companies has 

done, a company called Converge that went public last year, was 

to look at the existing regulatory framework and say, ‘‘How can we 

outsource’’ what they call negawatts, which is saving power in 


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times when there is a peak demand? And the regulatory bodies 

were able to incorporate that kind of a thing into the framework. 

Investment is another question. And I think there does need to 

be some sort of regulatory framework that allows investments to be 

recouped on some sort of reasonable rate of return for energy-saving projects that might be invested in by the utilities. 

I think from our perspective, the challenge is the public utility 

commissions of each state are very protective of their turf. And it 

seems to us that it has been hard for the federal government to get 

into that arena. To the extent that the federal government can get 

into that arena, I think it would be a real positive because this 

patchwork that we have with different states with different investment incentives does make it harder for a small company that 

doesn’t have the resources of an Exxon or a Duke Power to be able 

to figure out that whole landscape. 

Mr. BLUMENAUER. Thank you. Thank you for that courtesy. 

Mr. Abbasi, did you have comments? 

Mr. ABBASI. Two quick examples, and then I will defer to Dan. 

One is the energy-saving performance contracts. This is an existing 

contractual vehicle that has been in existence since 1978, I believe. 

One of our portfolio companies, Hannon Armstrong, has been a 

leader in securitizing the cash flows from those. 

We have not understood why, but this year the Defense Department has really not been using that authority to the extent that 

they have in the past. It is looking like somewhere in the neighborhood of 20 percent of the prior usage. 

And this comes at a time when the actual energy efficiency 

standards have been strengthened through EPAct 2005 and the 

January 2007 executive order issued by the president looking for 

3 percent year over year reductions in energy intensity, reaching 

30 percent by 2015. 

So there is an existing vehicle. And what these contracts do is 

they allow the government to not appropriate the up-front funding 

for the energy efficiency investment and then to reap that, the benefit of those. So it is an energy saving share that is facilitated 

through this third party finance. To date it has been quite successful over the years, 400 projects, 5.2 billion in savings, somewhat 

smaller on the net basis but a very substantial savings. 

So we are somewhat perplexed by why that isn’t being used to 

its fullest extent. And I guess we would encourage you to the extent there are formal or informal things you could do to prompt 

them to use that and would be happy to work with you to facilitate 

that. 

A second very quick one is I understand the Defense Department 

has requested that contracting authority for power purchase agreements be extended from the current limit, which is 10 years, up to 

20 years, which is much more in line with what a typical renewable power developer needs to have in order to finance their 

project. 

So this is what municipalities are doing. This is what private sector buyers are doing, utilities, and so forth. It would be great to 

have the federal government, as you said, the largest user of energy, to also have that authority. 

Mr. INSLEE. Great. 


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Mr. BRAUN. And, Congressman, I would like to take the opportunity to respond completely to all three of those points. I realize 

that you are on your way to a markup meeting, committee meeting. 

So I will take the next week or two and get back to you with those 

responses. 

I would like to touch on the third point that you mentioned. This 

whole idea of how can the federal government lead by example. 

The House of Representatives is a member of the Chicago Climate 

Exchange. It is essentially to lower the carbon. 

Mr. BLUMENAUER. Right. 

Mr. BRAUN. I think that is, frankly, admirable in terms of leadership on this issue. This morning we were talking about what the 

glide path might look like for cap and trade legislation. Well, this 

is a very long-dated proposition. The whole idea is, what can we 

do in the interim period, in essence, to get some momentum behind 

this? And I think that was an extraordinary measure taken by 

Speaker Pelosi in the House of Representatives in the Capitol. 

Mr. BLUMENAUER. It got a lot of flack for it, but yes, I agree. 

Mr. BRAUN. That is true. 

Mr. BLUMENAUER. I agree. 

Mr. BRAUN. That will only happen when something new is done. 

Mr. BLUMENAUER. No, no, no, no. I think it is terrific. That is 

great. 

Mr. BRAUN. But I think you can keep doing that type of thing. 

You are basically sending a very powerful message to every part 

of the economy that, look, this is coming. And we have got to start 

to deal with it. 

Mr. BLUMENAUER. Well, I appreciate your courtesy and look forward to following up with each of you in detail on that because 

these are things that are extraordinarily of interest to me and I am 

convinced that in each of these areas, we can do things that don’t 

cost and literally don’t have a budget impact but that can send the 

signals that you are talking about. And I really appreciate your examples. It is very, very helpful to us. 

Thank you, Mr.—— 

Mr. INSLEE. Thank you. 

And, Mr. Abbasi, with your permission, we will look into this 

with the Pentagon to see if we are missing the boat here recently 

on that. So if we can work with you in this regard? 

Mr. ABBASI. Sure. 

Mr. INSLEE. We have a vote shortly. So I am going to ask just 

a couple of quick questions. First, in as brief form as you can, why 

are tax incentives not enough? Why do we need a cap and trade 

or renewable electricals standard or decoupling? Why isn’t just 

handing out some tax credits enough? 

Mr. BRAUN. I will handle that one first, Mr. Chairman. In my 

opinion, an unencumbered price signal in a cap and trade is a very 

pure price signal. A properly functioning capital market for any 

commodity will deliver the lowest possible cost of abatement. 

The difficulty with a tax credit or a tax, carbon tax, is that it is 

an artificial price condition. I have mentioned in testimony that 

was submitted that when an artificial price condition is introduced 

into a market, you begin to move away from what can be thought 

of as optimal allocation of resources towards a solution. 


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Now, I don’t know if the price of carbon in the United States is 

a dollar, $10, $100, but the only way to find out really where the 

market-clearing price is is to use a cap and trade system. 

Mr. INSLEE. Mr. Abbasi. 

Mr. ABBASI. The point earlier about the need for us to reach beyond just the renewable sector, really, there are tremendous opportunities on supply-side efficiency. As I said, in the fossil fuel sector, 

that is where most of the carbon is flowing today and where the 

reduction opportunities are also very significant as well as on the 

demand side, just tremendous opportunities. 

What we really need is a broad pricing signal to motivate and 

discipline really all market participants. And by that I mean investors, entrepreneurs, large corporations, even consumers to respond. 

If you unleash the market, we know that it is not predictable, but 

we do know that we will unleash tremendous entrepreneurship in 

finding every last emission reduction opportunity at the lowest cost 

possible. That is what the market is good at. So what it needs is 

just that rule of the road. 

We really think of that as the foundation. And then these more 

targeted investment tax credits and so forth for specific sectors, 

like the renewable sector, are very, very important given the stage 

in those technologies development. But this over-arching platform 

of a carbon signal will pervade the economy and produce tremendous opportunities. 

Mr. INSLEE. And I was talking to some folks in the electrical industry the other day. And they were expressing fear of speculation 

and speculators in a carbon market. And that might be perhaps exacerbated by the run-up in gas prices we have experienced. 

Some of our concerns—and, actually, there has been some volatility in those markets because of some questionable trading going 

on or at least non-transparency in the markets. 

What should we do to allay or answer those fears? And are there 

things to do in this market to prevent, to make sure there is transparency and no gamesmanship that we experienced in Enron in 

this regard? 

Mr. PREND. I will start with that one, Mr. Congressman. I 

would—— 

Mr. INSLEE. We have got about 60 seconds. I have got to run and 

vote. 

Mr. PREND. Okay. So ITC I think is the most important thing 

from a small company investment point of view. I would not even 

put cap and trade as the second. I think cap and trade is an important part of an overall approach, but from a small company’s point 

of view, as opposed to maybe a slightly different view from these 

gentleman, I think it is something that is a part of an overall policy 

but is not the most important thing. 

I think the ITC is, by far, the most important because that is 

something we have today. And to take it away is like imposing a 

huge new tax increase on these small nascent industries. 

Mr. INSLEE. Well, as we discussed, we are going to try to get that 

done as quickly as possible. We have a lot of other questions, look 

forward to working with you. Thanks for your testimony. It is very 

valuable. We are going to share with others. This is the can-do 


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folks. You are the can-do people. And we appreciate you joining us. 

Thanks very much. 

With that, we are adjourned. 

[Whereupon, at 4:16 p.m., the Committee was adjourned.] 


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smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 112 here 61638A.077
98 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 113 here 61638A.078
99 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 114 here 61638A.079
100 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 115 here 61638A.080
101 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 116 here 61638A.081
102 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 117 here 61638A.082
103 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 118 here 61638A.083
104 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 119 here 61638A.084
105 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 120 here 61638A.085
106 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 121 here 61638A.086
107 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 122 here 61638A.087
108 


smartinez on DSKB9S0YB1PROD with HEARINGInsert offset folio 123/300 here 61638A.088