So Are Biofuel Assets Subprime, or Not?

Conn Carroll /

Al Gore has warned a group of leading investment managers at a UN-sponsored conference to cleanse their portfolios of “subprime carbon assets.” In Gore’s mind, businesses that rely on carbon-intensive energy are bad investments — or should be, and Wall Street should see them as riskier than “clean energy” companies because global warming concerns will result in new taxes or other ways to increase the cost of certain types of fuel. In an ideal Al Gore world, the investors would help him create his own self-fulfilling prophecy by immediately selling the companies he warned against.

Unfortunately for Gore, both investment and life in general is much more complex than he might realize. People and institutions invest for innumerable purposes. Investment managers are hired to make money for their customers now. If they also make money in the far future (which in Wall Street terms is any time after the next quarter), so much the better, but they better be able to come up with profits well before then also.

Gore would like to speed up the process, and put market pressure on carbon energy users now. However, a money manager who dumps a profitable investment because of something that might or might not happen years from now will be out of work long before Gore’s warning becomes reality, if it ever does. As professionals have warned amateur investors for countless decades, investments should be based on facts and numbers, not hunches or rumors.

In the long run, Gore might turn out to be right; the market like the economy is constantly changing. Thirty years ago, the gold standard of American companies were IBM and Xerox. A century ago, the largest labor union was the cigar makers. However, for every prediction of the future that turned out right, literally hundreds of wrong ones were forgotten. Fifty years ago, people confidently talked of nuclear powered cars, as well as cars that could also fly. Innovation and invention travels on mysterious paths that even Al Gore cannot predict.