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The Best Countries For Cleantech Startups To Thrive

Where in the world does a solar company have the best chance of success? It’s not the economic powerhouse you might think, though the U.S. and China aren’t far behind.

The cleantech industry—an all-encompassing term that includes wind power, solar power, smart grid technologies, recycling, biofuels, energy store, transportation, and more—is growing. Even a faltering economy won’t stop its climb; during the financial crisis, investments dropped just 6.6% compared to 19% in the oil and gas industry. That being said, some countries are markedly more friendly towards cleantech startups than others.

The Global Cleantech Innovation Index, published this week by the Cleantech Group and the World Wildlife Fund, attempts to rank countries based on how well they’re fostering cleantech innovation. The index takes into account four main factors: general innovation drivers (i.e. an entrepreneurial culture), cleantech-specific innovation drivers (such as government policies, public research and development spending, and access to private finance), evidence of emerging cleantech innovation (early-stage private investment, high-impact companies), and evidence of commercialized cleantech innovation (revenues, renewable energy consumption, late-stage investments, and so on).

Small countries dominate the rankings, with Denmark, Israel, Sweden, and Finland leading the pack. The U.S. rounds out the top five. Surprisingly, China doesn’t even make the top 10, though the report predicts that the country has "a strong potential to rise through the ranks in the coming years."

The reason: China dominates in the cleantech-specific innovation drivers category. The country has big incentives for cleantech innovation, including a five-year plan to get 11.4% of the country’s energy from non-fossil-fuel sources.

When it comes to general innovation drivers, however, the U.S. wins out. The Silicon Valley area exemplifies the entrepreneurial culture present in the U.S. And in fact, the U.S. has the most venture capital spending on cleantech compared to all other countries surveyed in the studies, even when the large GDP is taken into account.

Denmark tops the commercialized cleantech innovation category (and the general cleantech innovation index, where bringing it to market doesn’t matter)—well-known wind company Vestas is highlighted as an example of its success—but that doesn’t mean it will continue to dominate the sector in the future. The country only had a 3% annual cleantech manufacturing growth rate between 2008 and 2010, while China saw 77% growth and the U.S. had a 28% growth rate.

Some of today’s laggard countries could unexpectedly catch up in the future. Japan, for example is starting to build tsunami-proof floating wind farms in the wake of the Fukushima disaster. For now, though, countries like Denmark, Israel, China, and the U.S. look like promising places to set up your wind or solar shop.