As a California resident for 25 years, I would find it easy to categorize the past few years as among the most challenging for the Golden State. The roots of our current economic woes can be traced to the national housing and credit debacle that led to the stock market crash. The nation's financial crisis hit California particularly hard, both because we experienced a bigger housing bubble and we have more than your average number of housing and finance-impacted jobs.
Recently Next 10, the nonpartisan organization I founded in 2003, published the 2010 California Green Innovation Index--a yearly accounting that essentially takes the pulse of the state of California from both an economic and an environmental standpoint. Next 10 has identified some interesting trends in California that have helped to protect our economy from even worse impacts than we have already experienced during the current downturn. These trends also give me reason to believe that our recovery, although hard-earned, will be robust.
Trend 1: California continues to raise its energy productivity levels, freeing up dollars for businesses and households to spend in the economy, which creates new jobs.
California's energy productivity, measured as the ratio of energy consumed (inputs) to GDP, is not only 68% higher than that of the rest of the nation, it is also improving at a faster rate. When translated into dollars and cents, California's high energy productivity levels mean that in 2008, California produced $2.28 of GDP for every 10,000 British Thermal Units (BTU) of energy consumed, while the rest of the nation produced only $1.36 for every 10,000 BTU of energy consumed. Put in the simplest terms, thanks to our high energy efficiency levels, California businesses use less energy while producing more wealth for the state.
Trend 2: California is a global leader in green innovation.
By revenue, energy represents the largest industry in the world. Energy technology (ET) is emerging as the next breakout technology revolution. And like information technology (IT), ET is an emerging trillion-dollar market. Economic powerhouse China is already investing $12 million an hour in clean energy technology development and $15 billion over the next ten years in its clean car industry.
Like China, California is laying the groundwork from both a policy perspective and a private enterprise perspective to lead this trillion-dollar market. California has attracted $11.6 billion in clean tech venture capital (VC) since 2006, accounting for 24% of total global investment. In the first half of 2010 alone, the state attracted 40% of global clean tech VC, exceeding the first half of 2009 by two-and-a-half times.
This type of concentrated investment in California's clean tech economy has been achieved by design--not by accident. California has a long history of forward-looking energy and environmental policies that have acted as catalysts to accelerate the development of our state's growing core green economy. In 1977 and 1978, California adopted the nation's first energy efficiency standards for appliances and buildings respectively. These policies sparked technology and construction innovations that were adopted across the country. In 2002, California adopted a renewable portfolio standard, spurring the growth of our state's renewable energy sector. And in 2006, California adopted the nation's first cap on greenhouse gas pollution, further solidifying our role as a policy and technology innovator.
Considering California's long history of policy and technology innovation, is it any wonder that our state is number one in the nation in green technology patent registrations? In this area, California outpaced second-ranked New York by 150 patents between 2007 and 2009.
Trend 3: California's business climate is much friendlier than people think.
It would surprise many people to learn that California's average electricity bills are actually LOWER than the average electricity bills in most other states. California businesses benefit mightily from these lower costs. Our bills are cheaper, not because electricity costs less in our state, but because we use it much more efficiently. Compared with the rest of the nation, California ranks fourth for the lowest electricity bill as a fraction of GDP. This means that in 2008 due to our lower electricity bills, Californians had $29 billion more than Texans and Floridians to spend on goods and services in our economy.
It may also come as a surprise to learn that, despite what some say about our business climate, California is not experiencing a mass exodus of businesses. On the contrary, California is gaining substantially more businesses every year (+58,500 businesses) than are closing or leaving.
These three key trends, based on Next 10's nonpartisan research, give me solid evidence that we have many reasons to be optimistic about California's future. I am also encouraged by both the rate of growth of green jobs in our state and their resiliency in the midst of a recession. Since the beginning, California--home of the Internet boom, motion pictures, and now the leading clean tech center of the nation--has been most comfortable at the head of the pack. I believe we will continue to hold that leadership position as the nation recovers from its current economic challenges.
F. Noel Perry, CFA, is a businessman, philanthropist and founder of Next 10, an independent, nonpartisan organization that educates, engages and empowers Californians to improve the state's future.