The Role of Government in Supporting the Emergence of Clean Energy Venture Capital Investing in Switzerland

Project Report - Clean energy innovation suffers from a double-externality problem. As any innovation, new clean energy technologies create positive external effects in the innovation phase (R&D spillover), but in addition, they avoid negative external effects in the diffusion phase - in other words, they provide a high societal value, but not necessarily a higher private value to the customer . As a consequence, sustainable energy investors may not only be hesitant to invest because they are uncertain whether they can capture the full value of the new technology, but also because they are uncertain whether consumers will prefer the firm's products over a competing product that has lower value to society (e.g. higher CO2 emissions) but may create the same private value (e.g. generating electricity). This double-externality problem calls for government to take measures to avoid market failure in the form of a suboptimal level of investment in clean energy innovation. The low levels of venture capital investment in clean energy ventures in Switzerland tend to indicate a case of market failure.