– “Inside the Hive”: State officials don’t have experience to play green tech investor

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The Exchange is part of an ongoing series on The Hive tackling the questions facing Boston’s entrepreneurs, investors, and innovators. This week, we ask participants: Green Energy: Are investments and incentives in specific green tech companies responsible and helpful?

Below Jim Stergios, executive director of the Pioneer Institute, argues Massachusetts economic development officials lack the critical experience necessary to make smart investments in green energy companies but says policymakers can make incentives more fair.

Read the rest of The Exchange. Have your own opinion, or an idea for another topic? E-mail Hive@Boston.

Losing a $5 million investment in car battery manufacturer A123 may not seem like a big deal in the context of a $32 billion state budget. But it highlights the weakness of too many public sector economic development policies: priorities that change with elections and the fact that effectively picking winners in the marketplace is a specialized skill that few public officials possess.

Green energy investment is highly technical and requires knowledge of global market dynamics. Do public officials investing tax dollars in companies like A123 understand its cost position and technology leadership in a fast-changing global market? That would require expertise on competitors around the world and their technologies.

Given that the state created only a few thousand jobs rather than the 250,000 promised by the billion-dollar biotech package, do our economic development agencies have expertise of even local labor markets and job creation potential?

Economic development officials focus disproportionately on “sweet spot” industries that will not greatly help the Bay State recover from the bursting of the dot com bubble in 2001. While strengths in sectors like medicine, higher education, and research have helped us weather the recent recession, we still are hundreds of thousands of jobs below the 2000 employment peak. Moreover, cities outside the Hub have for years experienced double-digit unemployment.

The public sector can, however, do a lot to help build our green energy sector.

First, policymakers can ensure that tax incentive and credit strategies apply to all industries making research-and-development and other investments. That is fair and will not lead to misallocations of capital.

The public sector should build a bipartisan consensus around a consistent and fair tax regime so it endures past the next election. Entrepreneurs repeatedly bemoan the state’s volatile tax and fee policies, making investing here unnecessarily problematic.

Second, a responsible green energy policy builds on roles that public servants can play effectively, such as establishing fair, rigorous, and transparent regulatory and oversight processes. But investors they are not.

Third, Massachusetts attracts investment because of its highly educated workforce. Our competitiveness is directly related to our willingness to buck education policy fads and stick with the policies that significantly improved our K-12 performance.

Getting the fundamentals right is important. But we can do more. Massachusetts is one of five New England states to adopt Renewable Portfolio Standards requirements, which require that a percentage of the electricity sold in the state be from renewable sources. Cape Wind is the poster child for the weaknesses of the current RPS system. In addition to high and escalating rates, it locks us into a single technology and single vendor. That is no way to build a sector.

Instead, Massachusetts should adopt an approach used by Peter Diamandis, who famously promised the $10 million XPRIZE to entrepreneurs, inventors and investors who succeeded in launching a spaceship to the edge of space twice in two weeks. The competition, won by Microsoft cofounder Paul Allen and aviation pioneer Bert Rutan, attracted billions in investment and spawned a thriving research hub at the Mojave Air and Space Port.

Instead of subsidizing Cape Wind with tens of millions of dollars in annual RPS set-asides, we would be wise to bundle several years of RPS payments to create a renewable energy prize. The state could set high environmental and energy production goals, attract both buzz and investment, and actually stand a chance to build a significant base of new jobs.

Jim Stergios is executive director of the Pioneer Institute.