With one of the 10 largest economies in the world and a long history at the forefront of environmental movements, it’s probably no shocker that the state of California is a national leader in green business, whether that means encouraging the state’s “cleantech clusters,” which produce a large portion of the nation’s cleantech intellectual property, or allocating incentives that can help green businesses grow.

California Gov. Arnold Schwarzenegger (R), certainly wants to highlight that image. When in May of this year the Environmental Defense Fund issued a report praising California for products and practices that increase energy efficiency and provide savings for businesses, Schwarzenegger responded: “I love it when California is No. 1, and it is a big thrill to see business in our state lead the way.”

So how is California supporting such businesses on local, city and state levels? And more importantly, is the state doing a good job of maintaining that reputation? Some of California’s cleantech players are concerned that other states are aggressively offering packages to lure away green industries, particularly when companies transition from young startups to large corporations that can provide local jobs. And the state finished dead last for cost of doing business in Forbes’ “Best Places to Do Business” rankings. But given California’s vast 160,000-square-mile geography, diverse industries and population of over 36 million, there are inevitably areas in which the state is doing an excellent job of promoting green business, and some areas in which the state is falling short.

Cleantech clusters The most valuable assets in California’s green economy may be the multiple cleantech clusters that have emerged over the last decade. While the key ingredients that make a place attractive for green startups to set up shop are hard to define, researchers at media company SustainLane say a cleantech cluster requires access to investors, academic or federal research lab collaboration and state or local government participation.

California’s got these in spades, and clusters have emerged in San Jose, San Francisco, Los Angeles, Berkeley and Davis. The value of the cleantech cluster isn’t just about creating an ecosystem of greener business; the clusters drive valuable innovation and intellectual property. According to researchers at nonprofit research group Next10, California patents account for 44 percent of all U.S. patents for solar and 37 percent of all U.S. patents for wind.

A big factor in California’s cleantech cluster success is access to the venture capitalists and investors in Silicon Valley. Investors on Sand Hill Road have increasingly turned their eye to cleantech, often investing a good one-third of their hundred-million dollar funds into all things green.