I’ve been reading about a new crop of garages that convert hybrid cars such as the popular Toyota Prius into all-electric vehicles. Once you consider the economics of this folly, you see why electric cars are a fallacy for both the owner and investors looking for a toehold in this burgeoning market.

I read my first story a few months ago. It was about the Luscious Garage in San Francisco. Run by women, they carved out a juicy niche for themselves by yanking out the gas engine in hybrid cars and replacing it with another set of batteries. The job cost about $7,500.

More recently, I read another story about a similar operation — this one across San Francisco Bay in Berkeley. Run by two guys, they’ll do the same thing for $7,000.

Regardless of who you used for the conversion, the results were pretty much the same. Instead of filling up at the pump, you plugged your car into a socket. Let’s forget, for a moment, that you’re still burning up fossil fuels from your local power plant and instead focus on the feel-good economics of actually operating the cars.

In both cases, the writers of these articles interviewed the cars’ owners. What you get are comments like this when asked about shelling out $7,000 and more for the conversion…

“My carbon footprint concerned me more…”

“We don’t like what oil is doing to the world…”

One piece in CNN included a gentleman named Dave Moore. A resident of Washington state, CNN said Moore had “started down the electric-car path when he became worried about climate change. On the waiting list for an $85,000 Audi sports car, he decided to buy a Prius instead and got it converted to a plug-in car for about $10,000. He figures he has a green car for less than half what the Audi would have cost.”

That may in fact be true, but that doesn’t make it a valid business case for investors.

When it comes to making investments in green technology for the road, only one thing matters: ROI.

Carbon footprint, sticking it to the sheiks or that butt-tingling smugness as you sit in rush-hour traffic won’t cultivate a new industry. When you’re pitching fuel economy, it’s all about the economics.

So I ran a few numbers to see what the ROI would be on a hybrid-to-electric conversion just to get an idea of whether or not electric cars are something for investors should consider for future growth. Here’s what I came up with…

The average price of a gallon of regular gas today is $1.65 according to Consumer Reports. And the average driver logs 12,000 miles per year, using 550 gallons of gas, says the AAA.

For the $7,500 conversation, the ROI is 12 years for your average driver at today’s gas prices. For the $7,000 conversion, the ROI is 7.7 years.

Anyone can see that a 12-year ROI is ludicrous in terms of trying to sell an electric car. We’re not even sure the batteries would last 12 years. And as far as 7.7 years goes, well that’s marginal – again assuming that all the batteries can hold a charge of that long.

Now, what I didn’t take into account is the approximate $5,000 premium that people are paying for the privilege of buying that stock, hybrid Prius in the first place over the price of a gas-powered economy car such as the Honda Civic. If you want to tack on that extra $5,000, you’ll see that the ROI is simply absurd (or maybe not as absurd as Moore’s $10,000 Prius conversion).

What do these numbers mean in the real world of major automakers?

It means that electric cars could become nothing more than window dressing for empty showrooms. Sure people will flock to the Chevrolet dealership to see the impending Volt for about $35,000, but they’ll drive out with an econo-box Aveo for $12,600.

And why not?

You would have to drive the Volt for 13.5 years longer than the Aveo to justify the price difference at $1.65 per gallon.

So if you want to invest in an industry that strictly caters to people worried about their carbon footprint, well, more power to you.

If this were a strategy submitted a decade ago, it would be understandable. Instead, it shows the utter lack of executive insight at General Motors (NYSE:GM), Ford (NYSE:F) and Chrysler. Once again, fuel prices are going one way and Detroit is heading the other. If I recall, this has happened several times before.

Granted, the proposals were submitted under a cloud of incredible political pressure, but that is no excuse for the horrific plans submitted by the Big Three.  What concerns me the most is their caving to the “green” crowd.  Mark my word.  It will be the touch of death for Detroit.

It will cost much more than $15 billion, $25 billion or even $35 billion in government funding to get Detroit producing high-demand green vehicles. For proof, all we have to do is head to another section of Washington.

Won’t somebody please pay attention to us

Last week, the Electric Drive Transportation Association held an expo at the Washington Convention Center. Walk around the floor of the show and you will see booths from operations as small as mom-and-pop shops to as large as the folks pleading to Washington.

The theme throughout the exhibition hall is unified; the industry will not survive without the help of Washington. The industry association is calling for increased tax incentives and government assistance programs. Most of all, it wants the federal government to lead the charge by converting its more than half a million vehicles to green models.

In other words, the free market will not allow the industry to grow and expand, so Uncle Sam should intervene. We all know that line of thought will only lead to trouble.

As investors, there is a strong tendency to want to invest in the “greening” of America. But time and time again, the market has knocked the industry to its knees.

For long-term buy-and-hold investors, the industry is an absolute death trap. For speculative investors with the stomach to stand incredible undulations, there is some profit opportunity, but you had better sleep with a buy and sell button under your pillow.

The fact that Detroit is caving to the government’s pressure is a surefire sign of desperation. Detroit will get its money this week, but it will be a mere pittance of what the industry needs if it wants to succeed.

If the nation wants a green economy, let the free market dictate the winners. Trying to transform General Motors into a producer of “green” technology is the equivalent of asking Exxon Mobil (NYSE:XOM) to start drilling for spring water. It is not going to happen.

Uncle Sam needs to sit down and let the free markets take charge. If he doesn’t, I have a feeling somebody will knock him down.

Source: Going “Green” will Destroy Detroit

Biofuels can boost incomes and yields for farmers, revitalizing impoverished rural areas when they are introduced in countries with secure land ownership, the International Institute for Environment and Development said.

By raising the price of crops such as corn and palm oil, biofuels can reduce poverty in countries with a high dependency on agriculture, the London-based researcher said in a report with the United Nation’s Food and Agriculture Organization.

“Despite the highly polarized debate, biofuels are not all good or bad,” lead author Lorenzo Cotula of the IIED wrote in the report. “Biofuels can either help or harm the world’s poor depending on the choice of crop and cropping system, the business model, and the local context and policies.”

“Ethanol stocks were moving higher for a while,” says Charles Delvalle in Investor’s Daily Edge, “but have gone down since the middle of last year (maybe investors are catching on to how ‘not green’ ethanol really is). Geothermal producers are shooting higher. And those who sell wind turbines are making great money on increasing orders.

“By 2030, Morgan Stanley expects green sales across the globe to total over $1 trillion (that’s bigger than the Gross Domestic Product of 169 of the 181 member countries of the International Monetary Fund!). Most people I speak to see green technology as the wave of the future. It’ll only be a matter of time until they think that investing in green companies is a no-brainer.

“In the end, this whole green movement we see today could very well be the start of yet another massive bubble. And considering the riches that were made during the two previous bubbles, catching the green investment mania early on would be a great way to make a lot of coin in the next few years.”

Chris Mayer in The Daily Reckoning reckons it’s time to consider investing in an essential biofuel ingredient: sulfuric acid.

“The biofuel boom has kicked off a big increase in the demand for sulfuric acid. In fact, some 60% of the sulfuric acid ends up in agriculture. The surge in ethanol production is a double whammy on sulfuric acid. First, all that corn needs fertilizers. And second, the ethanol facilities themselves also use sulfuric acid in their own processing. A typical ethanol facility requires 2,000-4,000 tons of sulfuric acid per year.”

If you haven’t figured it out, I’m talking about green investing. And as gas prices rocket higher and higher, green technology will become even more widespread.

In the past two weeks, I have written about the subject. I’ve discussed that for the most part, the economics of becoming green don’t make sense. But thanks to higher gas prices, green energy is becoming more and more commonplace.

For example, the Financial Times estimates that by 2030, plug-in cars will make up 50% of all cars sold. According to the World Watch Institute, starting in 2010, China will spend over $236 billion each year on green investments.

That’s huge. But that’s not all…

In a recent Harper’s Magazine article, it was pointed out that to have a bubble you need three things:

1. Government incentives or deregulation
2. An irrational belief that drives the masses to buy
3. A sector which can spawn new ways to make money nearly instantly

Now think about it. The Internet bubble saw all three things.

The government decided not to collect taxes from online purchases. They also helped speed up adoption of broadband and granted various tax credits to companies that would deal in technology (Silicon Valley anyone?). So obviously, the government helped.

Second, most people believed the Internet was the future. They thought that it would be so huge that life itself would depend on it (they weren’t wrong, just early). Remember the Y2K bug scare? That was part of America’s obsession with technology.

To make matters worse, everyone thought that buying an Internet stock was a sure bet. Companies were spawning every day and they all thought they had a great idea. But the problem was that they were only ideas. I saw my best friend’s father make over $140,000 – and then lose almost all of it as the bubble burst.

Now let’s look at the real estate bubble.

Under Greenspan, financial regulation was a joke. He believed in a free market and so thought that any government regulation would result in more harm than good. Add in the super-low interest rates we had and you’ll see that banks had the green light to grow undeterred.

Mix all of this in with the belief most people had that real estate never goes down, and you’ve got yet another bubble recipe brewing. Heck, people who had never bought real estate were buying and flipping houses and speculative vacant lots in a matter of months.

Finally, when mortgage demand started drying up, banks started issuing subprime, interest only, and no-doc loans. Then they would pull mortgages off their balance sheet, wrap them up in a nifty little investment vehicle, and sell them to hedge funds, banks, and investors looking for the supposedly safer mortgage backed returns. These banks were essentially creating these investment vehicles out of thin air.

As you can see, the real estate market also fits the profile of a bubble.

So how about the green market?

Well, the government recently incentivized production of ethanol, biofuel, and solar technology. If a Democrat gets into office, these incentives should grow. Congress even pushed up the Corporate Average Fuel Economy (CAFÉ) guidelines for the first time since 1975. And the idea of carbon credits is beginning to gain traction in Congress.

So the government is helping fuel the creation of cleaner energy. Step one is complete.

What about step two?

If I talk to any of my friends and tell them I love the things oil does to the earth, they’ll slap me (yes, I know oil is bad for the earth). If I told them that I didn’t recycle, they’d yell at me (yes, I recycle). My friends are already convinced that the green movement is the way to go.

If you type in the word ‘green’ in Google, you’ll see thousands of new websites that all talk about how great it is to be green.

Look at corporate trends, and you see more commercials with companies talking about going green. Wal-Mart, IBM, Intel, Google, and even ExxonMobil is getting into the act. The idea of going green is spreading like wildfire. And it will only increase as gas prices move higher.