Joel Makower.

During a 20-year career, Makower has chronicled the rise of the green movement in corporate America through books, hundreds of stories, and countless speeches. Along the way, he has carved out a mini green business empire for himself. He is executive editor and chairman of Greener World Media, which owns Greenbiz.com, a website that reports on the burgeoning industry. He also has marketing ties to green business groups and sits on the boards and advisory committees of various green associations and organizations.

The recent explosion in everything green has kept Makower in demand, and that no doubt partly accounts for his absence from the book-writing business. It’s been 14 years since his last book, but that dry spell came to an end earlier this year with the publication of Strategies for the Green Economy — a blend of cautionary tales and how-to’s for business leaders contemplating a green battle plan.

Strategies for the Green Economy, by Joel Makower.

Makower has produced a book that is, at turns, both panoramic and detailed. He navigates the reader through, around, and over a dizzying landscape of failed green marketing campaigns and business initiatives. He recounts more false starts and pileups than a NASCAR weekend in Dixie. And he does so with a practiced style that only someone with a reporter’s eye and a front-row seat can pull off.

It’s an informative, if not always breezy, reading experience. Makower has an impressive command of the major issues and key research in the field. The problem often is that he feels compelled to share all this knowledge with the reader, who is bombarded with eye-crossing green consumer classifications — “LOHAS” (Lifestyles of Health and Sustainability) Naturalists, Drifters, Radical Engagements, Cynical Pessimists, Green Hypocrites, and Dull Greens. And, of course, the author can’t resist presenting his own green market segmentations: Committed, Conflicted, Concerned, Confused and Cynical. (You bet!)

And what would a business book be without statistics?: U.S. home electricity use costs $233 billion per year; a 5 percent reduction in water would save $14 billion; 58 percent of U.S. population is “not green interested.”

And just when Makower comes perilously close to drowning the reader in jargon and numbers, he breaks free of the trade-book approach and sets course on a narrative that is enlightening and engaging.

The patient reader is rewarded with lively marketing insights from giant corporations and individual activists alike. One of my favorites: Blogger Green LA Girl.

In 2005, Starbucks boasted that it would, upon request, brew a cup of coffee made from fair-trade beans in any one of its stores in 21 countries. Green LA Girl took up the challenge and started blogging about it, and she asked her readers to go to their local Starbucks and order fair-trade coffee and report back on the experience. The blogosphere erupted with chatter and stories of unfilled or slow orders. What must have seemed like a harmless PR idea for Starbucks turned into an international incident.

Starbucks quickly recognized it could lose control of its messaging if it didn’t act quickly. Did it turn its advertising agency loose to create a clever marketing spin? No, company executives remained calm, picked up the phone, and talked directly to Green LA Girl about their objectives and promised to address any problems customers were reporting. Disaster averted.

Makower shares similar valuable experiences from Coca-Cola, Wal-Mart, and General Electric, to name just a few of the companies he writes knowingly about. He’s no fan of empty sloganeering and stresses three keys to business success: What do you know? What are you doing? And what are you saying?

There are a few mildly irritating aspects to Makower’s writing. He reflexively falls back on the literary equivalent of throwing his hands in the air and shrugging his shoulders when confronted with conflicting data or partial information. “Who knows?” “It depends,” and, my favorite, “Confused? I promised you would be,” are overused handholds and not particularly valuable.

And then there’s the question of Makower’s myriad business interests. To his credit, he discloses obvious conflicts when they arise. Case in point: When writing about Clorox’s Green Works cleaning product, he informs readers that he consulted with the company on the rollout. That’s helpful, but I would have preferred that Makower disclose all business dealings he’s had with companies mentioned in the book.

There’s no reason to expect anything untoward, and Makower is quick to condemn companies that try to cut corners. But if he’s received payment for giving a speech to General Electric executives, for example, and he writes about GE (as he does), he needs to disclose that. This easily could have been dispatched with a paragraph in the book’s forward.

Oh, and for those of you who are wondering, the book includes an environmental benefits statement. Since the publisher adhered to strict printing standards, the book saved 77 trees, reduced solid waste by 4,900 pounds, and conserved 46,000 gallons of water.

Like I said, what would a business book be without statistics?

Green, Inc., by Christine MacDonald.

Lewis’s book traces its lineage to Mark Singer’s Funny Money, a masterpiece of nonfiction that exposed the double-dealing and corruption that led to the collapse of the savings and loan industry. Singer’s impeccable reporting and lively writing carries the reader to the little Oklahoma bank at the epicenter of the financial catastrophe and plops him down right in the middle of the boardroom.

So, it was with a certain amount of anticipation that I picked up Christine MacDonald’s book Green, Inc. (Lyons Press, $24.95) a self-described insider’s tale of how the environmental movement has been hijacked by self-serving leaders and corporate stooges. The book’s press release promised to reveal chapter and verse of mismanagement, malfeasance, and “double lives.” An ambitious goal, no doubt, and I couldn’t wait to tear into it.

The author immediately sets her sights on the Big Three of the conservation movement: Conservation International, The Nature Conservancy and the U.S. arm of the World Wildlife Fund — though she doesn’t pass up the opportunity to slam the Environmental Defense Fund and its leader, Fred Krupp, along with countless, but unidentified, environmental websites (what she quaintly calls ejournals), and other various and sundry enablers. She carries a special grudge for Peter Seligmann, CI’s chair, and his sidekick, CI President Russell Mittermeier, whom she paints as a couple of overcompensated, jet-setting playboys who devote more time to fawning over starlets and corporate chieftains than they do saving the planet.

MacDonald is convinced — to paraphrase a Watergate standard — there is a cancer within the environmental movement. The malignancy can be traced to the alliances between conservation groups and corporations that took root in the 1980s and exploded over the past two decades. CI, The Nature Conservancy, and the World Wildlife Fund all have come to rely on corporations and their foundations. The conservation groups might refer to the corporations as blue-chip companies. Not so, MacDonald. She calls them, “the devils of deforestation.”

MacDonald wasn’t always so down on big-name environmental organizations. Indeed, it was only a few short years ago that she abandoned her journalism career to take a “dream job” at CI. Her formal title: Manager of the Media Capacity Building Program of CI’s Global Communications Division. In short, public relations.

It wasn’t long after joining CI in 2006, MacDonald writes, that she realized that something was “deeply wrong in today’s clubby, well-upholstered world of conservations.” It wasn’t long, either, before she was out of a job. A year after joining CI, MacDonald’s position was eliminated in a reorganization. Necessity collided with opportunity and Green, Inc. was born.

Christine MacDonald.

MacDonald’s accusations are many and sweeping, but, for the most part, neither original nor revealing. She complains of widespread nepotism in the environmental industry, but fails to prove the hires are incompetent or unqualified (nor does she name names to back up her point). She condemns CI for taking millions from a foundation formed by former Intel founder Gordon Moore for a biodiversity center, but the only evidence she can muster of any wrongdoing is from unnamed “critics” who call the foundation a “glorified fishing club.”

She devotes a great deal of space to troubles within The Nature Conservancy — from incompetence and mismanagement to run-ins with the Internal Revenue Service. All interesting and true, but hardly new. The Washington Post broke the Conservancy story in 2003; MacDonald’s retelling sheds no new light.

And that’s true of most of the book. MacDonald wants the reader to accept her premise that the environmental movement has been irreparably corrupted merely because of corporate partnerships — i.e., guilt by association. The author is unable to see any value in conservation groups embracing such alliances in a bid to steer environmental policies within the business community.

Nonetheless, there are glimmers of a real story in MacDonald’s book. In particular, I wanted to know more about CI’s relationship with the Bunge Ltd., a diversified conglomerate accused of violating Brazilian environmental laws and using lawsuits and threats to silence its critics. And MacDonald is right to insist that environmental groups should be more vocal in criticizing U.S. corporations when they run afoul of environmental policies, especially those companies that have alliances with various green organizations.

In the end, though, MacDonald can’t forgive nonprofits for adopting “business operating practices and jargon,” and turning their back on the days of “late-night work sessions [that] would end in sing-a-longs.”

Philip V. Adams.

We caught up with World Energy President and COO Philip V. Adams last week to find out how the launch went and why he thinks WGE will stand out in an increasingly crowded field dominated by the Chicago Climate Exchange in the U.S. and European Climate Exchange and European Energy Exchange overseas.

Grist: Congratulations on launching the World Green Exchange. I know it’s only been up and running for a couple of days, but is it attracting users and working as you had hoped so far? How will you measure success longer term?

Adams: Thank you. The World Green Exchange was formally launched last week, but in fact we have been conducting transactions on the platform for the past several months. We’re a bit of a conservative firm, and took the view that we would have real client success in the marketplace before making an announcement of our capabilities. As we suspected, the auction approach is performing very well. In several transactions conducted to date, we have significantly bettered benchmark prices that were derived to our clients who were using brokers or bid-ask exchanges.

Grist: WGE is employing an auction-based trading system to match buyers and sellers. In layman’s terms, could you describe the benefits of WGE’s auction platform and how it functions?

Adams: Today’s environmental commodities markets are not very liquid nor very transparent, and our auction process creates more liquidity and more competition than other price-discovery mechanisms. There are three keys to our success. The first is creating an information-rich RFP (request for proposal) that answers all bidders’ potential questions, enabling them to evaluate the commodity and develop a bidding strategy. The second is recruiting as many potential bidders as possible. The third is creating a hypercompetitive environment whereby bidders are inspired to deliver their best price.

The Verdant auction in Alberta is an excellent example of all three of these aspects coming together. We provided a comprehensive RFP that answered all questions and created a compelling value proposition to potential bidders. We canvassed nearly 30 potential buyers and alerted them to the opportunity. Typically consultants work with two or three potential buyers because of diminishing returns in terms of incremental pricing improvement for the effort of sourcing several buyers. With eight committed bidders, we ran an auction event that yielded pricing 10+ percent higher than the company’s benchmark.

And here’s the secret sauce to our formula: we ran five different auctions to award the credits. The automated nature of the World Green Exchange auction software enabled us to test pricing for 80,000 tonnes of credits, 40,000, 20,000, 10,000, then 5,000. Once the prices were in, we closed the auction by awarding the top three bids for the 20,000 lot and the top two bids for the 10,000 lot. On a weighted average basis, this combination yielded the most revenue for the client.

Grist: There are no shortage of exchanges for trading emission credits. What makes you confident that WGE will be able to successfully compete against the more-established operations?

Adams: As we are finding in retail and wholesale energy with our World Energy Exchange auction platform, we believe that there is a significant market segment that will find the World Green Exchange auction as a superior pricing engine to bid-ask exchanges (our VER [voluntary emissions reduction] auction beat a bid-ask benchmark) and brokers (our Alberta auction bested a broker’s pricing). We are finding that auctions are beating bid-ask in North America’s most liquid natural gas trading point, and many economists tout auctions as a superior price-discovery method. We feel that our value proposition is unique and differentiated compared with the plethora of bid-ask exchanges in the market.

Grist: Currently, companies and individuals participating on the exchanges are doing so largely on a voluntary basis. Do you think a market-based trading approach will ever be fully recognized in the absence of a U.S.-sanctioned permitting process for carbon emissions?

Photo: iStockphoto

Adams: Well, clearly this is the case in the U.S., as that market today is voluntary for most companies and individuals. Sites like AtmosClear are doing a wonderful job bringing awareness to the public, and offering a tangible way to fight global warming.

What we are also seeing, however, is that in the absence of a U.S.-sanctioned program, there are many state and local initiatives. Something like 28 states (it keeps growing!) have renewable portfolio standards whereby the utilities are mandated to have a certain percentage of their power generated from renewable sources.

We are seeing regional initiatives like the Northeast’s Regional Greenhouse Gas Initiative (RGGI) where a cap-and-trade system is being implemented starting in 2009. The West and Midwest are also contemplating programs, and of course the three presidential frontrunners are all proposing some form of cap-and-trade.

So while we haven’t ratified Kyoto, things are moving very rapidly toward mandated programs, and I wouldn’t be surprised if the voluntary market was dwarfed by mandated initiatives in the very near future.

Grist: What do you say to the people who view climate change strictly as a moral issue and complain that cap-and-trade solutions essentially allow wealthy nations and companies to shrug off their responsibility and continue to pollute at the expense of poorer countries?

Adams: That’s a good question, and I disagree with the premise. The Kyoto mechanisms are in place to channel funds to developing countries. Harkening back to my economics days in college, I believe the term is externality, and the Kyoto accord is essentially causing the polluters to pay for polluting. If a "wealthy nation" doesn’t have the assets or wherewithal to take advantage of green power opportunities (few rivers, low wind), Kyoto has aligned incentives that enable that country to invest in renewable power projects (hydro or wind) or carbon-remediation projects in countries that have those assets. This appears to be an economically appropriate solution.

I believe that the "shrugging" is a factor for countries that have opted out of cap-and-trade solutions, but as I said earlier, I believe that the U.S. will be a player in the cap-and-trade world whether that’s with its own version or signing on to Kyoto.

Grist: A market-driven exchange solution has the unique distinction of being favored by both Democrats and Republicans, but there is growing support for a carbon tax — which its proponents claim is more equitable. Is it possible — indeed necessary — for an exchange, carbon tax, and other legislated solutions to live side by side to effectively reduce carbon emissions?

Adams: It seems to me that there should be one model in place, and given how well cap-and-trade has done with acid rain over the last couple of decades, and since it’s been adopted for Kyoto, I’m willing to believe that cap-and-trade is here to stay.

Grist: Do you have back-of-the-envelope estimate on the size of the U.S. emission credit market?

Adams: To be honest with you, there are other organizations whose sole mission in life is market sizing, so I’d be doing you a disservice to give my estimate. Suffice to say that it’s large enough to get our attention and for us to make investments — such as the launch of the World Green Exchange — to make it an important part of our strategic plan.

The most recent bombshell wager: Cambridge Energy Research Associates report that alternative energy investments will — hold on to your hats! — top $7 trillion by 2030. That’s an audacious number by any measure, and normally it would be enough to suck the oxygen right out of a convention of wind-farm enthusiasts. But that’s not the half of it. The most startling aspect of the report is that it barely raised a ripple in the investment community.

And why should it?

There’s been a steady drum beat of wild-eyed clean-tech forecasts for more than a year now. What’s one more trillion-dollar log on the fire?

But CERA is no pump-and-dump stock scam operating out of an abandoned warehouse in Jersey. It’s a respected global advisory group made up of serious economists and energy analysts and headed up by Daniel Yergin, a recognized energy expert and Pulitzer Prize-winning author.

Unfortunately, the report doesn’t appear to break any new ground with its forecast — it mentions that alternative energy is fast approaching mainstream application, that continued advancements in technology could rapidly speed both deployment and acceptance of clean tech, and that nuclear energy will play a large role in low-emissions power.

But it does add a bookend — albeit an incomprehensible one — to the debate about the direction and pace of the alternative energy sector by attaching a dollar amount to the size of the potential investment market.

By and large, much of the financial reporting on the alternative energy market has followed a similar pattern, focusing on investments by venture capital firms in green-tech startups, the green investing revolution, the inevitable collapse of the alternative energy bubble, or the dubious benefits of ethanol.

Few folk have been brave or foolish enough to venture a guess on the future girth of the alternative energy market. It’s hard enough just to get a reasonable estimate of current investments, let alone to project out 20-plus years down the road. If reports are to be relied upon, 2007 was the high-water mark for investments in the alternative energy market in the U.S. and Europe. Last year, investors poured $5.8 billion into the industry, according to one report by the Cleantech Group. New Energy Finance, a London-based research firm, estimated $117 billion was invested worldwide by companies and governments in 2007.

Normally, I’d describe the difference between $5.8 billion and $117 billion as a yawning gap, but compared to the spread between $117 billion and $7 trillion, it’s a mere rounding error. Maybe the market and investors were wise to ignore the announcement.

Eric Janszen, the founder and president of iTulip.com, recently argued in Harper’s Magazine that the alternative energy segment is a prime candidate for a massive asset bubble, potentially dwarfing both the dot-com and housing bubbles. I wrote about Janszen’s prediction last week. This week, Janszen joins us for a question-and-answer follow-up.

Grist: You make a convincing argument that a financial bubble in the alternative energy industry is nearly inevitable, but the question I have is, do all bubbles have to end badly? Is it not possible for a bubble to harmlessly deflate over time?

Janszen: As I mention in the footnotes of the article, I’m not fond of the term "bubble" because it suggests a thing that suddenly ends. Asset hyperinflations go through stages of growth and decline, resurgence, and so on. No two are alike, and they do not necessarily have to end badly.

Grist: What sticks in the mind about the dot-com bubble is the daily drumbeat of internet hype, frenzied day traders, and a surging stock market. That sort of activity isn’t as apparent in the alternative energy sector. I’m wondering, is there such a thing as a stealth bubble, or are we just at the early stages and the hype will build?

Janszen: If tech-bubble participants knew in 1996 what we know today, they’d generally recognize the formation stage of the tech bubble — that includes investors, management, and employees of tech companies, government policy makers, the press, in fact everyone except perhaps the investment bankers. But they did not, and in fact most did not even know a bubble had occurred until long after it ended. Similarly the housing bubble, although the participants were different, except again for the investment banks. As the Harper’s article indicates, in the formation stage there are early successes, but not until all of the conditions of an asset hyperinflation are met does the part of the process that is generally observable as a "bubble" occur.

The paradox today is that awareness of asset bubbles is wide, but it is unrefined: market events that are not "bubbles" are misinterpreted as such. Recent near manic enthusiasm and hype for solar and other green energy companies has been mistaken for a bubble. In the early stages of the tech bubble in the mid-1990s, early companies that never participated in the main event many years later came and went with a lot of hype. These booms often have false starts. These companies do not represent what I believe will be the main participants. A few will, but most will not. In fact, many of the companies that will experience the most growth and success during the boom have not even been formed yet.

At this stage, the core focus of the alternative energy and infrastructure bubble has not yet formed. Now it is a morass of ad hoc deployment of various products and technologies, mostly improvements on what has been around for decades. The key drivers of the alternative energy and infrastructure boom will be:

• Economic recession recovery
• Dollar weakness
• Loss of petrodollar liquidity
• Energy security
• Peak cheap oil

The headline drivers are three needs:

• Provide employment and economic stimulus
• Reduce U.S. dependence on imported energy
• Reduce energy intensity of the U.S. economy

[Editor's Note: As if to underscore Janszen's points, The New York Times published a story on Feb. 1 heralding the employment and economic boom alternative energy is creating in California.]

Grist: It’s not only the U.S. that’s rushing to find new sources of energy and build the infrastructure to support and transport those new supplies. The race is global. Does it follow that the bubble, if it happens, will be global in scale as well?

Janszen: The U.S. is not alone with these challenges. China, because the economy is not a market economy and is still largely centrally planned, is far ahead with a new energy infrastructure that will support economic growth as access to cheap, high quality petroleum supplies becomes more limited and contested. In fact, I expect that the changes that need to occur in the U.S. to make a new energy infrastructure possible, especially entrenched business interests, will be enabled politically by the demands of international competition. The country that gets there first, wins.

Grist: How would you see the alternative energy sector maturing, absent a bubble? Would it take 25-plus years and be akin to other capital-intensive energy industries?

Janszen: The only way alternative energy infrastructure does not grow rapidly is if some other boom occurs that helps the U.S. out of a serious economic crisis, oil becomes cheap and plentiful, and oil producers become politically stable. The occurrence of all three strikes me as low probability.

Grist: Are you recommending investors stay away from alternative energy stocks? Do you own any yourself?

Janszen: In my opinion it’s too early to identify winners. As I mentioned, the focus of the boom has not developed yet. It may be national high-speed rail takes off first, and that drives other technologies. Or maybe the new nuclear industry takes off first. At this point it’s hard to say, so the winners are difficult to identify.

Grist: What are the odds you put on a bubble in the alternative energy sector?

Janszen: I’ll answer that on a time scale. The odds that we will see what is generally observable as a boom (widespread public participation, general business press coverage, investment bank and hedge fund participation, etc.):

10 percent next two years
50 percent next three years
70 percent next six years
90 percent next nine years

It’s not the only financial freefall of late. The housing market bubble was punctured last fall and has been leaking like the Hindenburg ever since. (And long before that, the economy experienced the dual dot-com and technology implosions in the spring of 2000.)

Photo: iStockphoto

All of which is to say, it’s probably safe to assume most Americans are familiar with what a financial bubble looks like when it bursts. But how many of us could spot a bubble in the making?

Eric Janszen believes he can. In fact, the president of iTulip.com predicts the next bubble is going to be green — not as in the color of money, but as in alternative energy companies, suppliers, and technologies. If Janszen’s right (and he’s got a pretty good pedigree in all things bubbles, having had a front-row seat at the dot-com debacle and now as founder of a website that tracks financial dislocations), it could be the mother of all bubbles.

Bubbles are “a market aberration manufactured by government, finance, and industry,” Janszen postulates in the February issue of Harper’s Magazine (here’s the first page of the article; the rest isn’t online). Once one bubble is formed and punctured, the co-conspirators are motivated to create new bubbles to maintain a financial illusion of prosperity, and fresh capital is the mother’s milk that sustains the illusion. Without a follow-on bubble, the economy would, according to Janszen, crater like a cheap pyramid scheme.

Whether it’s technology, housing, or clean tech, what all bubbles have in common is that they create vast fathom values that can evaporate instantaneously. Values are not driven by the underlying worth of the asset — a share of stock — but by hyperinflated estimates that are unrealistic and thus unsustainable.

Janszen projects the alternative-energy bubble could outstrip both the dot-com and housing bubbles combined, generating in excess of $20 trillion in speculative wealth — “money that will be employed to increase share prices rather than to deliver ‘energy security.’” At their peaks, the tech bubble had a speculative value of $7 trillion and the housing bubble $12 trillion.

Financial bubbles were once rare and feared. And for good reason. The 1929 stock market crash was so devastating that no one in their right mind dared tempt that fate again, and regulatory safeguards were put in place to make sure it wasn’t repeated. That was pretty much the status quo until the late 1980s and early 1990s, when a new wind blew through the financial world: banking and financial industries were deregulated and deficits, once the bane of governments and institutions, were celebrated. Add in a dash of liberal interest-rate policies, and a “new generation” of cheering politicians, financial journalists, and economists, and presto: you have tinder for a wild fire.

But you need a spark, or as Janszen contends, a new invention or discovery that’s both plausible and in vogue. In the ’90s, that invention was the web browser, which ushered in a user-friendly internet and a revolution in digital programming. In ’00s, that spark is alternative energy, which promises to reduce our greenhouse-gas emissions and increase our national security by limiting our reliance on foreign oil.

You can already see a froth in the stocks of some of these companies.

First Solar, which designs and manufactures solar modules using thin film semiconductor technology, is one such Wall Street darling. Its stock climbed to $268-a-share from $50-a-share in the span of 12 months, before dropping back to its current, still-lofty $170-a-share range.

First Solar, which actually has real revenues and a widely praised product line, is by no means the only stock that’s gone hyperbolic. It doesn’t take much poking around on Yahoo Finance message boards to find other high fliers.

As kids we used to cram handfuls of Bazooka gum into our mouths and have bubble-blowing contests. My cousin Pete was the champ, blowing pink orbs twice the size of his head. Inevitably, the bubble would burst and he’d be left with a thin film over his face.

It was harmless fun. Not so financial bubbles.

And it’s not only the Silicon Valley sharpies that are on the prowl: GE is promising to plow $6 billion into renewable energies by 2010, double what they were projecting only last year; Germany’s Schott Solar is plunking down $100 million to build a plant in New Mexico, and predicts its investment will grow to $500 million when the facility is completed; and as 2007 drew to a close, Morgan Stanley made a $190 million investment in a clean-tech venture. Morgan, by the way, estimates the global renewable energy industry has a market cap in the neighborhood of $170 billion.

Certainly not all is rosy in the clean-tech patch. Tesla Motors and Imperium Renewables, once considered high fliers, have been dealt setbacks — and as a result, have trimmed employee rolls. And alternative energy stocks are starting to look positively bubble-ish to some on Wall Street (the subject of a future post).

Recessions don’t play favorites, for the most part. When U.S. consumers snap their pocketbooks shut, it creates a drag on the overall economy and everyone — including governments that depend on tax receipts — feels the pinch. The eco-economy probably won’t be immune. But with the hundreds of millions of dollars streaming through the doors almost weekly, it’s not a bad place — and better than most — to ride out the storm.