Online Extra: Green is Virgin Territory

By Kerry Capell Richard Branson, the charismatic and outspoken founder of the Virgin Group, says soaring oil prices are the "best thing that has happened to this world." Coming from a guy who has made a fortune from oil-guzzling airlines, it's a curious statement. But the 57-year-old British billionaire says sky-high fuel prices are forcing governments and big business to find new ways of reducing their dependency on oil.

"Whether you are environmentally conscious or not, it now makes sound economic sense to investigate alternative fuel sources," Branson says, noting that Virgin's own fuel bill has risen by more than $500 million since oil prices started climbing.

For Branson, it isn't just talk. In the coming weeks, he will unveil a $400 million investment to build one of the world's largest bioethanol refineries on the East Coast of the U.S. He hopes the environmentally-friendly fuel, which is derived from corn, wheat, and sugar cane, might eventually be used to power his fleet of planes and trains. At the same time, Virgin is investing in other biofuels such as cellulosic ethanol, which is derived from organic waste, including sawdust and crop byproducts.

MONEY WHERE HIS MOUTH IS. It's all part of Branson's plan to turn his vast empire, which spans planes, trains, mobile phones, travel, wine, and even spaceships, green. In addition to biofuels, Virgin is investing in everything from wind power to trains capable of running on cleaner, more efficient biodiesel.

He's even considering launching an environmental consultancy in Britain, which will help consumers run their homes more cost-efficiently through green technologies. And Virgin's latest venture, Virgin Galactic, will be his most environmentally-friendly business yet with spaceships that generate virtually no pollution.

Branson first got interested in green investments nearly a decade ago based on his belief that oil prices were likely to rise dramatically in the years ahead. So in 1997 when Britain's Virgin Trains was investing in a new fleet, Branson wanted to ensure they were fuel-efficient. As a result, the Pendolino electric trains are the first commercial fleet of trains with regenerative braking technology, where every time the train brakes the electricity used is regenerated back into the national grid. It's the same technology Toyota later used in its Prius cars.

READING UP.Moreover, the trains are the only ones in Europe capable of running on biodiesel, which is made from renewable energy sources such as rapeseed and soya. Branson is lobbying the British government to cut the tax on biodiesel, which is currently taxed higher than regular diesel.

Despite his earlier investment in fuel-efficient trains, Branson's green conversion began in earnest only recently. Five years ago, he read The Skeptical Environmentalist, in which author Bjorn Lomberg argues that things aren't as bad as green activists make out. Unconvinced, Branson delved deeper, reading a number of books on global warming including Tim Flannery's The Weather Makers and Al Gore's An Inconvenient Truth.

But the real turning point came two years ago when media mogul Ted Turner invited Branson to Washington, D.C. to meet a team of global warming experts. Prior to that meeting, Branson was convinced that the best to way to combat rising oil prices was to build an oil refinery of his own. But the meeting in D.C. convinced him that global warming was a major problem. "It became apparent to me that far from investing in conventional forms of refining, the more sensible thing for Virgin to do was to invest considerable sums in alternative fuels and refining," he says.

BUSINESS FIRST.Branson is the first to admit that going green makes smart business sense. "Investing in biofuels will put pressure on conventional fuel prices and act as a natural hedge for our airline and train companies," he says. Plus, if oil stays at $60 a barrel, he says, biofuels should produce "very decent returns."

While Branson won't reveal just how much money he thinks these investments will yield, he points out that Virgin doesn't go into any new business unless it stands to make a minimum of 40% on capital invested. "But I think in the case of our new refinery we are talking considerably more than that," he says.

Analysts agree the money-making potential from biofuels is massive. Although biofuels currently account for only 1% of the world's total energy consumption, global production of ethanol has doubled since 2000. Today, the ethanol industry in the U.S. is currently worth around $5.5 billion. And with a number of tax incentives for producers now available, capacity is expected to triple within the next six years, according to consultants Frost & Sullivan. "Now is the best time to invest," says Frost & Sullivan analyst Sreekanth Venkataraman.

LAUGHING ALL THE WAY.But Branson's greenest venture to date is Virgin Galactic. Virgin Galactic's fleet will be based on the technology developed by aviation legend Burt Rutan for SpaceShipOne and funded by Paul G. Allen. That spacecraft made history two years ago as the first privately-manned craft to travel 62 miles above Earth—the official boundary of space.

Virgin's new spaceships are made from carbon composite materials which are lighter and more fuel-efficient than metal. Even better, the spaceships generate virtually no pollution. The launch system will rely on a fuel derived from laughing gas and rubber to propel anyone willing to pay the $200,000 ticket price into space.

Virgin, which expects to begin the first commercial flights into space by the end of 2008, says 220 potential space travellers, including Bryan Singer, director of the latest Superman movie, former Dallas star Victoria Principal, and British advertising honcho Trevor Beattie, have ponied up a total of $16.4 million to reserve their seats.

Other interested celebrities include Alien star Sigourney Weaver, Brad Pitt and Angelina Jolie, Morgan Freeman, and British scientist Stephen Hawking. Branson boasts that Virgin Galactic's fleet will be much cleaner and greener than NASA's. While NASA's spaceships are able to go 50 miles further into space, they also use the equivalent of two weeks worth of New York State's total electric supply.

In contrast, Virgin Galactic's launch system will be much more energy efficient. "So we can do thousands of flights for every one NASA runs," says Branson. Capell is a senior writer in BusinessWeek's London bureau

With Mark Scott, in London

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