Green Inc. : Environmental Technology Industry Is Championed, but Small Area Businesses Say They’re Not Cleaning Up

If business success were a popularity contest, environmental technology would be a leading index. The industry is trumpeted by the likes of Vice President Al Gore and Gov. Pete Wilson. Its growth seems inevitable, and few would quibble with its aims--it’s not every industry that can claim it’s out to save the planet.

But for local companies, the reality doesn’t quite match the hype. Turning environmental technology into a new, green engine for job growth in California is tougher than it looks.

In fact, “we are hampered tremendously by being here,” contends Inderjit Sabherwal, president of the toxic-waste cleanup firm Ensotech Inc. in Sun Valley. Sabherwal said that due mostly to frustration with state regulations governing soil and water cleanup, he is considering moving his 20-year-old business out of California.

The San Fernando Valley area has scores of environmental businesses--those that prevent, detect, monitor and clean up pollution, or offer green alternatives to activities that harm the environment. Thanks to strict pollution laws and armies of unemployed engineers, Los Angeles is home to the nation’s second-biggest concentration of environmental-technology companies in the country.

For many of those companies, however, the going is tough. Although a few giant concerns, such as Lockheed Corp. and Rockwell International’s Rocketdyne unit, have gotten into the environmental-technology race, most of the companies in this evolving industry are small. Their expansion is limited by an array of obstacles. Lack of capital, increased competition, inconsistent enforcement of environmental laws and cumbersome state and local regulations governing cleanup are among the most common gripes. The recession has also taken a toll.

Sabherwal, for example, said his company was doing annual sales of $5 million and had a staff of 60 five years ago. Today, sales have diminished to $4 million, and his staff has dropped to about 30. He blames the local recession in part. But he also said the state is slower than it used to be in pressing companies to clean up toxic waste.

Michael Uziel of Enviropro Inc., a Chatsworth firm specializing in hazardous-waste cleanup with revenues of $3 million per year, says sales have fallen off in the last three years. He says that the Clinton presidency and state programs aimed at fostering the industry have been of little help to him.

And Owen W. Dykema, a 65-year-old former Rocketdyne engineer who has spent the last 15 years honing his invention for burning coal without producing acid rain, is just about out of money. He’s still searching for that elusive investor he needs to bring his product to market.

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But many of these companies are particularly rankled about regulatory problems. Common themes are the slow pace of state approvals for cleanup and excessive testing requirements.

Before a company such as Ensotech can remove and treat, say, dirt tainted with lead, complicated negotiations over the extent of contamination, and the best way to deal with it, must be completed with the agency in charge--usually the state Department of Toxic Substances Control or regional water quality boards. Local fire departments, water districts or county health departments often have to sign off on the project as well.

Sabherwal tells the story of his company’s efforts to dispose of piles of dirt contaminated with oil, scraped from lands owned by a San Diego public agency. After more than a year of negotiations, Sabherwal was unable to settle on a plan for disposing of the dirt that was acceptable to his client and the Department of Toxic Substances Control. The client finally loaded the soil on a train bound for a landfill in Utah, where hazardous-waste statutes aren’t as tough.

James M. Strock, secretary of environmental protection for the state, said enforcement of state regulations has been steady. But he acknowledged problems with cleanup approvals. “In California, we have the highest environmental standards in the world. But we also have one of the most convoluted permitting systems.”

Another reason why many companies are having trouble is that, as their industry has matured, market growth has tapered off. At the same time, competition from a growing number of firms in the business has increased.

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The competitive atmosphere has created an arms race of innovation, as companies struggle to meet client demands for cheaper and quicker ways to clean waste. But they run into roadblocks because they lack the capital needed to develop and market new products.

Uziel, for instance, has spent $350,000 developing a method of cleaning tainted soil by shooting microwaves through it. He thinks the device could drastically cut costs of cleaning up petroleum and other toxins. But he must find a partner to sell it because he can’t afford the $3 million he says it would cost to market it himself.

Sabherwal has spent $1.5 million of his own money developing a method for treating soil with heat. “I haven’t gotten one cent from a government agency, and the banks won’t lend you anything.”

One reason few investors will take a chance on environmental technology--especially if it’s related to soil and ground-water cleanup--is that cleanup is considered risky because it’s subject to government regulation, said Don Hichens, general partner with Liberty Environmental Partners. San Francisco-based Liberty is one of only about a half dozen venture capital firms in the country that specialize in funding environmental technology.

Air-pollution technology has been somewhat more successful in drawing investment because of California’s long track record with strict air pollution standards, ample room for innovation and support from government agencies.

For the most part, investors prefer putting their money behind market-driven pollution products such as recycling and prevention technology, Hichens said. An example of preventive technology is Rocketdyne’s new $1.3-million aqueous cleaning facility, scheduled to open at the Rockwell International division’s Canoga Park site in November. That facility uses ultrasound waves, rather than polluting solvents, to remove grime from engine parts. Rocketdyne is also developing environmental products to market.

Still, innovation is more likely to come from small start-up firms than from big defense companies or engineering/remediation firms, said Hichens. And there are plenty such companies around.

Take Dykema, the former Rocketdyne engineer with an invention for burning coal without producing acid rain. Working from a tiny office in his West Hills home, he spends his days hunting for a foreign partner with the means to test and market his technology.

His idea, first developed at Rocketdyne, is to smolder the coal in a fuel-rich chamber prior to burning. The gas mix and temperature are manipulated so that polluting compounds such as sulfur form a solid. The remaining coal is relatively sulfur-free and can be burned without releasing the chemical into the air, he claims.

Dykema’s plan requires a $30-million retrofit of 17-story coal-burning plants. Although a small-scale prototype of such a boiler has been built, the method has never been tested in a full-sized utility plant, Dykema said. With just $10,000 left in his company’s bank account, Dykema says if he doesn’t find a partner he’ll give up the effort by year’s end.

What the environmental industry “really excels at is getting to the point where I am,” he said. “Where we really fall down is getting from here to the market.”

Same goes for Randy Cook, a San Fernando car shop owner and environmental entrepreneur. His idea is a spill-containment kit for diesel trucks that consists of a few folding booms, oil-absorbing mats and a pot of sticky clay for plugging leaks--all neatly packed in a plastic bag.

Cook claims it’s a cheap and practical solution to the common problem of roadside diesel fuel spills. For $49.95, he says, truckers could use his system to control fuel-tank leaks instead of waiting for the fire department to come. But few firms are buying it. Although Cook has managed to sell some kits to industrial shops, his dream of marketing them on a wide scale to trucking firms hasn’t materialized, and he’s frustrated that no one in government will act on his argument that spill-containment kits for truckers should be mandatory.

“I have no help. I’m just going door to door, knocking on doors,” Cook complained. “I don’t understand it. This will save thousands of dollars.”

Despite the problems, there are signs environmental technology has turned a corner.

Banks and insurance companies are leaning on companies to keep their environmental record clean, further spurring the market for environmental technology. Nationally, a handful of innovative environmental companies sold stock to the public for the first time last year, a milestone that some believe will encourage more investment in the industry.

Strock, the California environmental secretary, said regulatory reform is one goal of the state’s newly formed Environmental Technology Partnership, a task force of state and industry leaders charged with nurturing the state’s $20-billion environmental technology industry. The task force is reviewing regulations statewide and is seeking to speed up the pace of permits.

The state also recently began an environmental technology certification program in the hope that “certified” technology will encounter fewer regulatory barriers and attract more investment to the industry.

A similar effort is being carried out on the federal level. In July, the White House released a glossy 150-page report that outlined its strategy for regulatory changes, and educational and export programs to stimulate the market for environmental technology. And the federal Environmental Protection Agency has doled out $36 million in grants for environmental technology projects.

New state programs to encourage the industry are also getting under way: an environmental technology “incubator” funded by local government and donations is scheduled to open in Thousand Oaks this fall. About 20 start-up firms have already applied for office space and technical assistance it will offer.

Uziel, the CEO of Enviropro, says the growth of the industry can’t come too soon to solve the nation’s huge environmental problems. “Whatever you have heard and read,” he warns, “it’s worse out there.”