Last week I promised that I’d go over some promising sectors in the green market. But the past two articles on the topic generated some important feedback that I’d like to go over with you today.

The first comes from Karl N. and he says…

Charles, First you have to buy into the assumption that fuel prices are realistic and will continue to increase! In reality, there is no reason for them to be where they are.

Second, Ethanol requires no more energy to produce than gasoline. Producers must pump, refine, and transport gasoline. Global hunger increased before ethanol because the American farmers cannot cost effectively operate. Fertilizer, fuel, seed, transport costs, living expenses, land and machinery have all increased substantially since the 1960’s without a significant increase in grain prices. The market will have more grain with the increased production of Ethanol than without it.

Please do not buy into propaganda that Ethanol is not efficient to produce, will contribute to world hunger or will drive food prices up (a loaf of bread uses 4-5 cents of wheat in it).
The truth is that unless grain prices increase more farmers will be forced to quit and food supplies will decrease.

I have to say Karl, that fuel prices are realistic even at today’s price. Granted, a lot of speculation has helped take prices higher. But the truth is that according to the Energy Information Administration, the world’s oil production peaked in 2005.

Sure, more oil is being found. But it’s not being found in easy-to-reach places. It’s all offshore, sands, and shale. Production from these areas should come online in time to replace lost production from older wells. The net result? Flat to slightly higher production in the next five to ten years.

Even with US consumption falling, consumption in China, Brazil and India is skyrocketing. The truth is, if these countries keep buying more and more, then oil isn’t too expensive.

Second, you have to admit that corn-based ethanol isn’t the most efficient way to make energy, right? The US Department of Energy says that corn-based ethanol produces a whopping (note the sarcasm) 26 percent more energy than required for production.

That’s god-awful.

Cellulosic ethanol, on the other hand, could produce up to 80 percent more energy than is required to produce it. That’s much better. But mass-scale production is also far off. (There are a few companies setting up pilot plants. But that’s all)

Now, I agree that global hunger isn’t all ethanol’s fault. I’d place the blame on the emerging economies like Brazil, Russia, India and China. But you have to admit, using farmland for fuel means there’s less farmland available for food. And if there’s less food being made, prices move higher.

In addition, corn-based ethanol was a big reason why corn jumped well over 100% after President Bush first announced the ethanol initiative. The effect is obvious - the ethanol hype is helping prices move higher. And this has been a boon to farmers.

Better yet, farmers are poised to make even more money in the years to come, mainly because of growing global demand for food.

I also received an e-mail from Sam L. that said…

As a seasoned investor I wouldn’t put one penny in green stocks, not now or for the near future. It is all hype and no action.

All hype and no action, Sam? How about geothermal producers that are taking off? Or solar producers which are making profits? Wind producers are doing well, and many high-tech battery manufacturers are on the cusp of inking huge, multi-million dollar revenue generating deals.

If you think investing in clean energy is a bad idea, just take a look at the Market Vectors Global Alternative Energy Fund (GEX) and you’ll see that the sector’s been clearly moving higher. And the PowerShares Global Clean Energy Portfolio (PBD) has been doing the same.

It seems to me that investing in green stocks is a great thing to do. What you want to do is avoid the companies that have no profits… the ones that are using very experimental technologies that haven’t been proven yet. These companies may do well in the future, but you take a huge risk by putting your money on them now.

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