Low Oil Demand and Prices Hurt Investment in Green Tech

(image: accuweather.com)

The ongoing recession has claimed yet another victim: Investments in green energy technology.  It may seem slightly paradoxical, but the sluggish demand for crude oil we’ve seen in the first quarter of 2009 translates to financial struggles for biofuel and other clean tech companies, according to an article on earth2tech.com.

The American Petroleum Institute reported on April 16 that deliveries of fuel oil such as diesel and heating oil declined 8.5 percent in the first quarter – the lowest levels in more than a decade. The API suggests the numbers reflect a drop in economic activity due to the recession.  On the surface, it may seem as though reduced oil consumption is good for the environment, and in some immediate ways, it is. A reduction in jobs, driving, flying, eating out, spending and consuming all add up to a decline of environmental destruction.  But as New Yorker writer David Owen points out, “How do we persuade people to drive less—an environmental necessity—while also encouraging them to revive our staggering economy by buying new cars?”  It’s a great question to ponder, especially considering economics and energy are intrinsically intertwined.

When oil demand drops, the capital required to bring alternative energy solutions to the mainstream is hard to find. In considering the oil marketplace, you can’t separate green tech from the general desire for energy. As oil demand goes down, so too do the competitive incentives for biofuel technology development.  Like it or not, support for green tech is born out of a sense of necessity to find feasible replacements for non-renewable resources. When oil demand and the price per barrel are high, there is more interest and urgency to mass-produce an alternative.  When oil is cheap and the demand for it is low – like it is now – grants and funding go elsewhere.

Michael Graham Richard discusses this sentiment in a Huffington Post article, where he lists several reasons why the recession hurts the environment. Companies cut back on research and development of green initiatives, since they typically aren’t short-term profit generators. In a down economy, inexpensive products win out. And the cheapest products aren’t usually the green ones.  This philosophy is shortsighted. When the economy recovers and demand rises once again, we’ll be reminded of our oil dependence and the volatile fluctuations of the market.  After all, President Obama’s stimulus package did include $15 billion a year designated for developing renewable energy alternatives to fossil fuels. How effectively it’s utilized, though, is yet to be seen.

To visualize the sad state of green technology, Earth2Tech created a Biofuel Deathwatch List which maps the locations of fragile companies.  Some companies, like ethanol producer, Aventine, have already filed for Chapter 11 bankruptcy.  Interestingly enough, American oil companies seem to be doing just fine. In March alone, domestic oil production rose 7.2 percent to 5.5 million barrels a day, the highest level since May 2005.  When the economy and demand revives, they’ll be best positioned for growth. According to the API, this will result in a modest increase in oil prices. With luck, investor interest in clean tech will rise, too.