Chasing Windmills

The IPO of a company specializing in Wind Power Generation is leading the promoters and private equity investors to laugh all the way to the bank. The rest of us are putting up a brave front. Theatrics aside, questions surround whether the market will rationally begin assigning premia to companies seeking to create 'greener' tomorrows.

Despite stiff resistance by leading economists in a Copenhagen summit conducted several months back by a maverick mathematician, the Kyoto Protocol continues to limp forward. With a view to create a market for emissions trading, the Kyoto protocol can at best bring down the global average temperature by 0.28 deg Celsius by 2050. That may not sound much, but the current rate of increase will most certainly lead to what Led Zeppelin would call "When the levee breaks".

Stray moves such as curtailing the use of plastic bags, the early (and I believe, innovative) adoption of Carbon Credits by select Indian companies is leading to an institutionalized approach to environment preservation. This will be a more powerful catalyst for change than environmentalist movements.

From a purely financial investment viewpoint, I would back companies who can substantially reduce current emission levels and actually benefit the environment through their activities. For example, a US based company that went from boom to bust and now is treading cautiously through such initiatives is Idealab (if I were a US investor, I would be highly interested in Idealab). The moves of some of the large oil majors are well documented.

The financial returns would be driven by a possible combination of several well known factors:
...... society and legistature who will seek to banish the repeat offenders when a large scale disaster finally strikes (not the 'mere' daily extinction of several species - marine and terrestrial)
...... cheaper alternatives in recycling
...... heavy lobbying by large corporates who adopt such technologies
...... Outright closure of offensive industries by leading them to bankruptcy e.g. tanning

What is true is that alternatives have not really lived upto expectations. Vehicles currently driven by alternative fuels are not sustainable "mass transport" carriers and therefore will not be able to reduce consumption significantly. Hence, consumption is being controlled through administered prices rather than being driven by competitive alternatives. This continues to be the grim reality.

However, as a blind optimist, one can only reply, "Noone anticipated Google when Yahoo! and Alta Vista ruled the world of search engines. Who knows?" I'm sure Don Quixote would approve!