IF ANY industry ought to be seeing silver iridescence in the dark slick of oil gushing into the Gulf of Mexico, it is renewable energy. However, since what is perhaps the biggest environmental disaster America has yet seen erupted at BP's Macondo prospect on April 20th the RENIXX index, which measures the world's 30 largest publicly traded renewable-energy companies, has fallen by 15%. This is even worse than the 12% fall in the MSCI world stockmarkets index in that period. Moreover, it continues a longer-term decline of more than two-thirds from the index's all-time high in December 2007.

The oil spill might have been expected to revive a sense of urgency that the world, and America in particular, should reduce its dependence on oil, not least by switching to cleaner, greener sources of energy. Instead it is increasingly common to hear investors asking gloomily, “Is green dead?”

The green-energy industry is still policy-driven rather than market-driven

The economic downturn is clearly partly to blame for the decline in shares of renewable-energy companies. The industry is still policy-driven rather than market-driven, and the recession has increasingly called into question whether governments will be able to afford the sort of environmental policies they have been promising (including in their fiscal-stimulus programmes). These policy commitments had been an important factor in the bulging market capitalisations of green-energy firms two or three years ago. The recent problems in the euro zone have increased such concerns among investors, especially given the big contributions that wobbly countries such as Spain and Italy have been making to total global demand for solar and wind energy.

Add to that the failure at the Copenhagen summit to make any significant progress in reaching a global agreement to curb climate change. Add, too, the similar lack of progress in getting an energy bill adopted by America's Congress. Taking these failures together with the sharp fall in the price of carbon on Chicago's voluntary emission-permits market, it is easy to conclude that the Cassandras of early 2008 who talked about a bubble in green investing have been proved right.

Yet a case can be made—and the industry's optimists are making it—that the green gloom is overdone. “The stockmarket is focused on the macroeconomic environment, not on the fundamentals,” argues Tom Werner, the chief executive of SunPower, a big American solar-energy firm. Although SunPower's share price is currently around one-tenth what it was at its peak in December 2007, Mr Werner insists that green is anything but dead. “The secular move to renewables such as solar is an unassailable shift,” he says. A glut of solar panels is expected to hit the market in the coming year as new production comes online, especially in China. Even so, Mr Werner remains confident that his firm is “extremely well-positioned” to profit from that shift.

The outlook for greenery looks a lot better outside the wind and solar firms that dominate the RENIXX index

Moreover, the outlook for greenery looks a lot better outside the wind and solar firms that dominate the RENIXX index. “Investment in wind and solar overheated in the run-up to the economic crisis, and it is still suffering. But other sorts of ‘clean tech' investment are bouncing back,” says Dan Esty of Yale University, the co-author of “Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value and Build Competitive Advantage”. Investment in clean-tech from various sources, including venture capital, private equity and corporate research and development, peaked at around $200 billion in 2008, before dropping by 20-30% last year, estimates Mr Esty. But it is reviving this year, and may soon exceed the 2008 total—if not in 2010, it will certainly do so in 2011, he predicts.

In renewable energy, geothermal and cellulosic biofuels are attracting lots of new money, says Mr Esty, as are various forms of supporting infrastructure, including “smart grid” and “smart home” technology, better batteries and other energy-storage equipment. The electric-car business is booming, with a number of new models soon to arrive on America's roads.

China is also investing heavily in electric cars: could America lose the green-tech game?

However, Chinese firms are also investing heavily in electric cars. What the Chinese authorities have realised, says Mr Esty, is that even leaving aside their contribution to preventing climate change, electric cars have the potential to solve the country's huge problem with urban smog. He worries that America is in danger of “losing the innovation game” to China on various green-energy technologies, electric vehicles included.

The danger of losing technological leadership in a crucial industry to a big geopolitical rival; and an oil disaster in its backyard. Surely America's government cannot ignore the pressing need for new policies to promote its green-energy industries? By marking down the shares of renewables firms, the markets seem to be assuming that the government will indeed ignore it. Then again, as has been all too clear in recent years, the markets do not always guess right.