Investment in clean technology companies is soaring, but there are signs that a bubble is developing setting the stage for a boom and bust cycle, according to a major new research report out this week.

The 600 page report from US analysts Lux Research found that with 1,500 clean tech start ups now operating worldwide global spending on R&D climbed 9 percent in 2005 to $48bn, while the value of IPOs and venture capital investments in the sector more than doubled to $4.1bn and $1.5bn respectively.

However, the report warned that while these soaring investment levels highlighted the pace at which environmental concerns have reached the business mainstream they also raise the risk of a boom and bust cycle crippling the embryonic market.

"Driven by solar and biofuel deals, the energy segment looks overheated," said Lux Research President Matthew M. Nordan. "There's no way that more than a fraction of the 930 energy start-ups operating worldwide can possibly succeed."

However, Lux Research argued that other clean technology segments could provide more fertile ground for investors. "The attention to energy masks neglected opportunity in other segments," argued Nordan. "For example, the waste segment accounted for 32% of merger and acquisition value last year but only 1% of IPO value and 4% of venture capital."

His comments echo those of Ziad Tassabehji of the Abu Dhabi based Masdar Clean Tech Fund who warned at the recent Library House Clean Tech conference that hype was overtaking good judgement in certain sectors of the clean tech market and diverting investment away from some important green technologies.

"Within weeks of the State of the Union address [in which President Bush unveiled plans for an almost fivefold increase in biofuel use] we saw countless biofuel companies emerge and in my opinion many of those companies are ridiculously over valued," he said. "Other [clean tech] subsectors like carbon sequestration, water purification and energy storage, which there are a real world need for, are seeing far slower deal flow."