Saturday, July 26, 2008

Al Gore's Green Challenge: Ignore It and Start Small

Al Gore recently gave this speech challenging our country to use 100% renewable sources within the next 10 years.


While you would think that would make us green investors jump for joy, instead all I hear is a reverberating echo. As much as I love the challenge, and I love Mr. Gore's science, mission, and rhetoric even more, the problem is ideological. How do you take historically consumptive and self interested Americans, from Wall Street to Main Street, and get them to believe that green energy is necessary (or even possible)? Especially in a country that ridiculously fights the notion that global warming is even occurring!

Permit me one self righteous, proselytizing rant: not until green can line the pockets of the already wealthy while keeping the status quo will it ever be viable. That means paying government with special interest money to rival oil, gas, coal, and other pollutant energies. It also means venture capitalist cash flows, double and tripling profits of Wall Street financiers, and forcing (and I do mean forcing) the average joe to comply with green energy initiatives. If it's going to happen in 10 years, green will have some serious moving and shaking to do right now.

Green Energy Becomes Tradeable Commodity

Julian Murdoch of wrote a piece on the movement we could expect from a move to green. He points out one thing in particular that both caught my eye and gave me concern: "...wind, solar and geothermal power aren't tradable commodities..." This is both troubling and promising at the same time, and here's why.

When the CME figured out how to make weather derivatives a viable investment vehicle, who's to say we couldn't trade excess energy from solar flares (a fairly random occurance)? Or the excess energy from geothermal activity, or storm activity that generates stronger waves? The fact is, they will figure it out. It will be sketchy at first, incredibly difficult to understand, and basically akin to betting on football games, but they will figure out a way. The CME (and all of Wall Street for that matter) is easiest to describe as a giant Vegas, setting prices designed to have a market on either side. The brokers are the bookies, and you are the gambling addict. When viewed in that light, it's easy to understand how there's a market for just about anything you can bet on.

What troubles me about green energy as a commodity is it's inherently linked to natural occurences. A mine, once found, yields a certain amount of ore which can be manufactured and refined. This means there is a limited quantity for that commodity - when the mine runs out, the ore price rises. If green energy commodities, like wind and solar, come into being, you are dealing with sustainable, hypothetically infinite "mines". The market implications are totally unquantifiable at this point, and my gut instinct is to assume no Wall Street market maker is interested in a game that isn't rigged. To that extent, there may be pressure to force us, the consumer, to pay for the commodity in ways we don't pay for it now.

Call it my deeply ingrained cyncism, but I think there's danger in motivating green commodities too abruptly. I think Mr. Gore's challenge was primarily aimed at Congress, but I think what it lacks is the acknowledgement that Congress is elected by you and paid for by big business. I think the big change will come from you, the little guy.

Start Small, Not Big: Don't Wait For Big Brother

While Mr. Gore's challenge is inspirational, the serious change has to happen with you first. Wall Street will sit up and take notice when investors invest in green. If Wall Street sees money in it, expect profiteers to enter the market, prices to skyrocket, profits will be made, corruption will be abundant, and eventually the market will crash! But hopefully not before it's actually done some good.

Starting small can happen in many ways, all of which are in your control:

1.) Call your broker, call your 401(k) provider, call your retirement administrator and ask for green or socially responsible. Pressuring at the institutional level can easily help sway the tide from the inside.

2.) Self directed brokerage account? Set a percentage to be green and responsible, and rebalance once a year. Even if that percentage is just 5%, it makes a difference in the long run. Plus, it can't hurt to diversify.

3.) Do the little things around the house: recycle, don't use plastic bags, find a farmer's market, and maybe even if it's yellow let it mellow. Outside of urbana (and to large extent, suburbana), recycling still isn't the norm. You don't have to buy a hybrid or solar panels right away to make a difference. In fact, there is evidence to suggest that the environmental cost of making a new hybrid is far greater than just buying a used car (used hybrids top all, though). At the risk of standing on a pedastal, imagine if everything you threw away you were forced to throw in your backyard (or in a corner in your apartment). Suddenly those 20 beer bottles and used milk containers would be much better off in the recycle bin!

Need some guidance to step one? Start here, then move on to this.

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