Fine Print - June 2008

Green without envy
By G.D. Gearino

I’m not above the occasional indulgence in cheap wordplay, and I’ll prove it with this bit of advice: If you want to make big piles of green money, go brown. “Green,” of course, is shorthand for any activity rooted in environmental improvement. Buildings are green, manufacturing is green and investments are green if the protection and nurturing of the ecology can be demonstrated — or at least claimed with a straight face. Green-ness is a powerful marketing tool these days, on par with (and first cousin to) “organic” in foods and “fair trade” in clothes and jewelry and such.

But there’s not much evidence that selling green results in a big payday. My suspicion is that advertising a product’s green-ness is akin to a potato-chip manufacturer climbing on the “no trans fat” bandwagon. It doesn’t help you increase your market share so much as it simply helps you keep the share you’ve already got.

The highest-profile green movement is in cars, specifically in the creation of gas/electric hybrids. But even with ever-increasing gas prices and new federal standards requiring higher fuel economy, sales of hybrids — 2.2% of the market last year — are expected to climb to only 7% by 2015, according to J.D. Power and Associates. General Motors expects to need government tax incentives to get its new Volt hybrid off the lot at a competitive price, and Toyota’s biggest financial benefit from the Prius may be that it “makes even its thirstiest gas suckers like the Sequoia and Tundra appear greener than GM’s vehicles even when they aren’t,” as BusinessWeek magazine’s auto blog recently put it. (And those high-profit gas guzzlers, regardless of Toyota’s public embrace of green-ness, are what it still prefers to sell.)

A couple of years ago, I visited Piedmont BioFuels, an industrial co-op at the end of a Chatham County rural road where diesel fuel is created from cooking oil. The fuel is virtually carbon-neutral, has no sulfur and puts far fewer harmful particulates in the air than does gasoline. Plus, a diesel engine requires no modification to burn it, and its exhaust smells like French fries. At about $4.50 a gallon, it costs more — but at the clip gas prices are rising, you’ll eventually be paying that much per gallon anyway.

Here’s the clincher, though: You don’t have to pay $4.50 a gallon. Biodiesel is so easy to manufacture that you can make it at home if you’re willing to collect used grease from your local fast-food outlet. The co-op will even show you how to make the fuel and sell you the equipment. You’d think that rural road would be choked with the traffic of people clamoring for the chance to both go easy on the environment and save on their fuel bills. It ain’t.

But 30 miles away in downtown Raleigh, another company is making impressive amounts of money on the cleanup end of the environmental industry. Cherokee Investment Partners has raised $2 billion, spread across four funds, to capitalize its business of investing in, cleaning up and redeveloping contaminated “brownfield” properties. It seeks a percentage return somewhere between the high teens and mid-20s — and usually gets it. Investors, many of which are state pension funds, are attracted to Cherokee for one reason, CEO Thomas Darden told a reporter a few years ago: “No one would invest in us for safety and diversification. They’re only interested in returns.”

What’s the difference? Why is it harder to make big money in the business of preventing environmental damage than it is in the business of cleaning up environmental damage? The answer, in part, is an inverse corollary to the old saw in the entertainment business (often attributed to P.T. Barnum) that you’ll never go broke underestimating the taste of the American public: You’ll almost always go broke overestimating how much people are willing to spend or do on behalf of the environment. Sure, they’ll buy fluorescent light bulbs and faithfully take their recycling bucket to the curb. But when asked to pay a true premium for environment-friendly features on some product — or to even simply bring their own reusable bags to the grocery store — most people won’t do it.

And occasionally, the public seems willfully anti-environmental. Another Raleigh company, Pepsi Bottling Ventures, puts municipal water in plastic bottles and sells it to the public — meaning that people are not only paying extra to drink city tap water that has been further purified but also are adding plastic waste to the world as they do so.

In short, virtually every time the environment faces a showdown with cost and convenience, it loses. But this very same public also demands environmental regulation and enforcement. Thus, when various (and seemingly endless) sites around the nation are found to be contaminated, somebody has to clean them up. And it’s not always McNasty Big-bucks Inc. footing the bill. Even the most cursory spin through Cherokee’s list of partners and participants shows many public agencies among them.

There’s the other half of the answer. When you partner with people who have access to public financing and influence over the permitting process, big paydays almost surely will follow.

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