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Tree-Hugging for Fun and Profit

By Spear's

So how far are we from a ‘cleantech’ tipping point: the point at which world-weary cynicism about ethics and the environment, in the style of Petrolhead-in-Chief Jeremy Clarkson, tips over into a rush of enthusiasm along the lines of ‘this is big, this is important, I’ll have a slice of it’?

There are increasing numbers of investors who believe the tipping point has already been reached. Last year, venture-capital investment in ‘cleantech’ (a category that covers a range of high-tech options, from straight energy-generation and storage through to transport-based solutions and recycling and waste) in North America and Europe exceeded $5 billion, up from $3.6 billion in 2006. And that’s just the venture-capital end of things. Tot up the 2007 global total (governments, private sector, mainstream investors, private equity, and so on), and it comes to a whopping $120 billion, making cleantech the fastest-growing investment sector in the world.

Most people are amazed at these figures. They’re so used to thinking of environmentalists as tree-hugging, Guardian-reading weirdos, that they’ve failed to spot just how mainstream the environment has become – and how massive a business opportunity this represents. By the same token, most environmentalists are themselves rather taken aback at this somewhat improbable shift in the street cred of all things green – and, astonishingly, many still hanker after those earlier ‘glory days’ of pure but pitiful irrelevance.

It was indeed so much easier back then. Though the costumes may have been different, it was Star Wars that provided the cosmological context. You were either on the side of the angels:so many Luke Skywalkers wielding metaphorical light sabres in defence of Planet Earth, or fully signed-up conscripts in the pay of Darth Vader’s Earth-trashing Death Star. It was all black or white. Never grey.

These days the picture is almost all grey – morally speaking, that is. When the editor of Green Futures (Forum for the Future’s bi-monthly celebration of all the good things that are going on in the world of sustainable development) invited its readers to take a punt on when the world’s first carbon billionaire would first emerge (having made his/her first billion from trading in CO2 or selling green electrons), the business-savvy readers loved it, while more traditional environmental readers found the challenge both crude and inappropriate, if not morally repugnant. How could anybody celebrate the would-be success of self-serving plutocrats, even if their wealth did derive from the kind of technological breakthroughs on which the future of humankind depends?

As far as today’s investors are concerned, naivety may prove to be a bigger problem than any lack of moral rectitude. I can’t help thinking that a lot of people are going to get their fingers burned in the current cleantech gold rush. It happened before, after the OPEC-induced oil shocks of the late 1970s and early 1980s, when billions of dollars got splurged on cutting-edge fuel-cell technologies or hydrogen-hypes of every conceivable kind. But when the price of oil came back to down to earth in the mid-1980s (from an inflation-adjusted high of $101 a barrel), the dreams of many a green entrepreneur came back down with it.

So why will it be different this time around? On the off chance you’re into seriously crazy speculation, imagine for a moment that the price of oil will come back down from the new 2008 high of $127 a barrel to less then $50 a barrel in 2009/2010. At that point, does cleantech become ‘uneconomic’? Do deal flows dry up, and does the whole cleantech market collapse in the face of another surge back into oil, gas and coal?

That’s never going to happen. Almost all the world’s ‘easy oil’ is gone, or is rapidly disappearing. The unconventional stuff (in the tar sands of Athabasca in Alberta, or the bitumen deposits in Venezuela) not only costs a lot more to produce and has a much bigger environmental footprint, but it causes at least three times as much CO2 to be released as the equivalent amount of conventional oil. And that’s a disaster for a world just waking up to the potential horrors of accelerating climate change.

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So grim are the latest forecasts that within a few years (a very few years, according to some experts), the world’s principal mechanism for addressing the challenge of climate change will be for governments the world over (including the US and China!) to put as high a price on a tonne of CO2 as is politically feasible. Investments in the energy sector will be radically affected. At that point, for instance, you won’t be able to count the stranded assets littering what’s left of Alberta’s devastated environment.

Please don’t think this isn’t going to happen – that climate change will be revealed (as Jeremy Clarkson would have you believe) as a greeny-inspired scam to end all scams. It is going to happen – and the only judgement any serious investor has to make is when.

Which is precisely why most sector analysts are not anticipating any kind of imminent ‘bust’ to today’s burgeoning ‘’ boom. But as the fiasco surrounding the introduction of biofuels in Europe has so clearly demonstrated, they are certainly expecting some ‘crash and burn’ cleantech spectaculars. Just because the cleantech trend is literally unstoppable, it doesn’t guarantee commercial success for everyone involved. As in all immature markets, caveat investor.

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