During last year’s Earth Day the business community was just coming to grasp with the economic slowdown; there was a growing understanding of climate change issues and the need for clean energy solutions and responding to that growing interest, investors over the past year had opened the money valves to record levels. Global investments in clean energy reached $155 billion for the whole of 2008.

How things have changed. Months into a deep, global economic crisis, this year’s Earth Day is being celebrated amidst an investment drought — venture capital funds, which were early supporters of the clean energy sector — have all but pulled out of the sector. Banks are also not lending, despite unprecedented government support.

One report, released earlier this month, compiled by research firm New Energy Finance, showed that global investments in the clean energy sector plummeted to $13.3 billion in the first quarter of 2009, a 44% drop from the fourth quarter of 2008 and a 53% drop from the same time last year.

The biggest single drop was investments, mostly in the form of project finance bank loans, supporting the construction of new wind or solar power projects. These totaled $11.5 billion during the first three months of 2009, which was down 44% from the fourth quarter of 2008.

Investments by venture capital funds fell to $1.8 billion during the first quarter, down 22% from to the fourth quarter. This contrast with data from the Cleantech Group, which tracked $1 billion in venture investment during the first quarter.

Commenting on these figures, New Energy Finance’s chief executive Michael Liebreich, said an oncoming train” hit the sector. He added:

“These figures highlight the need for policy-makers and administrators in the U.S. and elsewhere to ensure that stimulus funds start flowing immediately…. There is also a strong case for further measures, such as requiring state-supported banks to raise lending to the sector, providing capital gains tax exemptions on investments in clean technology, creating a framework for Green Bonds and so on, all targeted at getting investment flowing.”

The lack of financing comes as clean energy companies are waiting for government monies from the federal stimulus. Also, while banks and VC funds have stopped investing, demand for clean energy solutions remains strong, mostly from utilities, which have to meet state mandates, requiring them to generate a growing amount of electricity from clean energy solutions.

The silver lining in this downturn is that green energy, like never before, forms the cornerstone of the economic recovery programs enacted by the U.S. government and governments the world over. In the U.S. a larch chunk of the $731 billion stimulus is going to go finance clean energy initiative.

In France the government will spend $7.1 billion on clean energy initiative; $2.1 billion for the UK; and a whopping $221.3 billion will be spent by the Chinese government on clean energy solutions.

Back in the U.S. the Treasury Department is drafting rules to distribute the stimulus money, but it has not offered a specific timeline on when it would start distributing funds.

Liebreich does not expect stimulus money in the U.S. and abroad to reach companies for at least another year.

On this Earth Week, despite an undeniable slowdown, we can be assured that clean energy will for the first time, play a crucial role in ensuring a global, green-focused economic recovery.