The Defense Advanced Research Projects Agency (DARPA) for decades has shown what’s possible when federal dollars meet dedicated research to procure and develop technology from a public/private platform. Peterson Institute for International Economics super star, Gary Clyde Hufbauer and Euijin Jung developed an industrial policy scorecard of lessons learned the past half century. The highest combined scores go to the DARPA and other government-funded R&D, including Operation Warp Speed and the North Carolina Research Triangle Park. In terms of dedicated activities, trade measures promoting automobile manufacturing and direct subsidies for plant relocation also get A’s. What works less well in their work are bets on specific companies and protectionism (especially to depress imports).
The recently enacted Infrastructure Investment and Jobs Act (IIJA) (Public Law 117-58) contains several programs designed to entice private and public participation in scalable clean/green projects. Apollo’s announcement last week of a new $2.5 billion infrastructure fund is an example of how the private sector responds to government investment in a sector.
The IPAVE infrastructure ETF shows the bounce which has turned into a healthy ride since the Biden administration began talking up investment in this space. Granted not all 98 securities in the fund can or try to claim green bona fides, but the Department of Energy’s center for alternative fuels lists two dozen programs focused on the broad topic.
John Roque, 22V’s technical analyst, scored the entire ETF of which 61% earn good or strong scores (we show only the top 35 by market cap). Many are cooling off in the early days of 2022 after a hot 2021 performance. The bipartisan infrastructure law provides financial support for ten years, heavily weighted to the coming five years. The DARPA success story will be difficult to replicate but the model is not. Not only are IIJA monies available to private and public entities for various activities, a national version of side-by-side investing is emerging given the signal sent by Washington.
Industrial policy and public-private-partnership are phrases too easily subjected to political interpretation. But the overlap between infrastructure and green/clean energy seems ripe for investing tailwinds as technology is applied to address global value chain deficiencies. We remain of the view that the costs and other uncertainties of the inevitable transitioning away from hydrocarbons means economic and marketplace fundamentals drive the pace. We also believe that taxpayer seed capital will help incent governments and investors to find ways to take risks in and benefit from the transition.
