The Gold in Green is “Fool’s Gold”

Author // Stewart Borie
Posted in // Capital Formation, Entrepreneurship, Environment, Finance, Green, Real World, Uncategorized, Venture Capital

It seems the tides are turning for the economics of “green”, and the luster may be off the rose in “CleanTech”. Why should this be a surprise?

Take a look at the latest article from Reuters.com. “Venture firms seek light green tech bets” http://tinyurl.com/5wlckrc .It seems that all of the people who expected to “cash in” on: 1) the oil price speculations; 2) the government stimulus dollars, 3) the irrational capital market sentiment and 4) false valuations of “Green” and “CleanTech” as industries to raise money for, have been forced to “reevaluate” and “lighten up” so to speak. It’s like clockwork. Anyone who has tracked the ethanol business for the past 20 years would find this highly predictable.

“Going Green” has always held promise of change for our world in the hearts and minds of those who care. By the same token, it has also always held the promise of “gold” for those who seek to invest in the technologies and trends of “greening” when it is in vogue and when the business cycles create the right circumstances and sentiment, especially the cycles of subsidies, tax incentives and high speculative oil prices.

And greening has always resulted in “gold” for those who time it right and take advantage of the incredible power of artificial markets, sentiment swells and speculative bubbles which define the nature of  “greening” as national and global trends. Hence, for those who hope for a “silver bullet” there are indeed some out there, particularly in the areas of semi-monopolies such as landfills and waste management, where simple control of transportation and the end zone such as a landfill nearly guarantees a win. Or corn growing control, coupled with subsidies, give a margin few can overcome. “Greening” will always have local pockets of sentiment emerging out of desire and care for one’s local environment or one’s special cause. But control, money and power have a track record of winning. If one is adept at M&A and corporate finance, the highly fragmented nature of the overall industry also leads to opportunities to acquire, integrate and consolidate.

But making it an industry is different. The “industry” requires regulation, irrational sentiment and market drivers such as speculation, influences from cartels and special interests. Greening as a “good thing” is not a viable market. Consumers are driven by consumption, not altruism. The “greening” markets are driven by fear and care which fuel activism and which drive some healthy philanthropy, and the rest is driven by artificial forces, forces that feed on “greening” market timing opportunistically. A smaller segment is driven by care which fuels activism and which drives some healthy philanthropy. These are very positive. But neither fear nor care and the efforts they motivate build true market demand for “greening”.

The industries of “green” are artificial. They are not driven by direct consumer demand. They are instead driven by indirect consumer demand and regulations . The indirect consumer demand is desire to avoid dying of pollution and to avoid the destruction of the planet. Regulations arise out of public pressure on government for actions to protect lives and the environment. Regulations then drive industries to fulfill the needs of regulatory mandates.

The environmental industries, per se, are in effect government driven, multibillion dollar artificial markets. Those who understand the inside drivers and have the access to the decision making and the opportunistic resources such as capital, political resources, and influence, can make fortunes “greening” the world.

But the “Greening” is not necessarily sustainable or benevolent. “Greening” can also mean, simply making money from environmental trends and mandates. Even major players such as Goldman Sachs speculate, buying land for solar, waiting for an energy windfall. Does the world get new solar resources? Not until it is immensely profitable. How much do you think Greening” and “Wall Street” equals “saving the world”, or doing the right thing”? Multimillion dollar bonuses don’t fit with these parts of our social spectrum.

The solar industry would not exist without government incentives. The economics simply do not pencil and probably won’t for several years, and governments are worried about subsidies and then the specter of overfunding projects that will then get trounced by new more efficient technology in the not to distant future. States and countries are pulling out of this game.

Similarly, water treatment must be regulated into existence, and still only a fraction of the contaminants of water are truly tested. Waste management such as recycling must be mandated. Air pollution control is, again, law. There are no warn and fuzzies, there is no natural sentiment driving this, There are laws. And there are people who both take advantage of laws as well as oppose or neglect laws for profit.

The venture capital industry will rush like a hoard to exploit new laws and tax incentives to fund the next “goose that lays a golden egg” like ethanol, biofuels, hydrogen, etc, only to get burned by the fundamental rule of environmental markets – The markets are artificial.

It takes great knowledge, skill timing, resources and connections to make a profitable play in this arena. Public and capital market sentiment can change on a dime and regulations can change with the changes in political and economic winds. Subsides can vanish overnight as budget and trade deficits change. Regulations can be changed simply due to political doctrines and congressional redistricting. Furthermore, venture capitalists are rarely ecologists and think about the global unintended consequences of  “silver bullets” such as, for example, biofuels, when forests are cut down to feed the “gold rush” for new “energy crops”.

Environmental “industries” can come and go overnight. How many prospectors during the Gold Rush found little or nothing or “fool’s gold” in the rush to make a fortune? Algae was hot for the last several years. But how many algae startups have actually been start-downs?

It seems that the “old timers” of this market are the ones who have seen the cycles, understand the true underpinnings, can see the politics, economics and consumer trends that shape and define these markets, keeping watch with a cautious. almost cynical eye, upon the volatile, irrational, opportunistic and speculative trends that drove the apparent “greening of our world”. It’s easy to predict the crashes and the media hype, the government “knee-jerks” to intervene with all the same major corporate collaborators. The public is led to believe that government will fund innovation and jobs, but the money goes to all the same players. The money is spent. People are still looking for the jobs and the new industries. The environmental industry is almost like the defense industry, because the government money, designed to spur innovation and entrepreneurship, goes to all the same contractors, the ones who are already set to to take the money, not the hundreds of innovators who need the money.

Do your own research and see how much of the stimulus money designed to stimulate our economy went to new companies, who have new technologies, and who will keep money here in the US, rather than multinationals who are already “on the list”, with jobs going offshore. It is purported that not one new contractor was awarded  government “Green Innovation” funds. Billions went to approximately 115 companies, all of whom were “already on the list”.

It seems that “green” and “gold” are unfortunate bedfellows. It also seems like their relationship is not a true marriage and can change on a dime and is driven by economics and opportunism.

Perhaps the beauty and allure of the most attractive purpose and opportunity of our world, to truly “green” our world, is instead like so many other hopeful promises for the future, just an expensive night on the town, gambling with influence peddlers, self interests and gamblers.

The only problem. It’s our planet that is our future. How many times will our world be able to say “oops, it was just the latest goose chase with no golden eggs”?

So, instead of “greening”, now that the silver bullets have once again tarnished, I guess we  just do “green lite” for now.  The world can wait until the ROI is right. Can’t it?

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Comments (1)

  • December 25, 2011 at 7:33 am |

    The waste engendered by the “green scam” is incalculable. GENOCIDE!

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