Admittedly, it’s a bit obscene to talk of a new bull market now that Wall Street is heavily sick and in need of a trillion dollar bailout. But perhaps it makes sense to do it anyway because it’s very likely that the next bull’s going to be colored brightly green.
Green investing is set to become easier as new markets are emerging and platforms dedicated to the general grey economy’s pollution problems begin to take off in earnest. “A whole new multibillion-dollar green economy will rise–and with it the kind of massive financial opportunity that could get not only America but also Wall Street back on its feet”, writes to Glenn Hurowitz in a report entitled “The Next Bull Market” in The Nation.
So what are the major ingredients of this green colored bull likely to be? A good area to start off with is the renewable energy sector. Wind power is doing great, but forest conservation and solar power are also hotting up at tremendous speeds. In the last 8 years the wind power sector has sky rocketed. Growth of over 335%. The solar industry has experienced even more phenomenal growth -579%- but is a lot more tricky to play. Analysts predict the double digit growth party in both sectors to continue for at least the foreseeable future.
Green investing is markedly different from the normal stocks on Wall Street. But that’s in many ways its saving grace. The markets are considered with such disdain at the moment that even the staunchest anti environmentalist is willing to try something completely different, even if it’s everything they’d previously thought of as clumsy stuff for losers.
For instance, the wind energy sector is predicted to grow 215% between 2007 and 2012, from 84,934 MW to 267,837 MW.”Now this is information that can give your portfolio a boost. In an industry that’s doubling in size every four years or less, there are surely more than a few companies worthy of investment operating within it”, says Grace Cheng. She subsequently analyzes global top performers after assessing that China’s the world’s largest market, followed by the US in a report here.
Less hot as yet but definitely one to keep a track of because of its sheer size is the US’ biggest cap and trade market. The Regional Greenhouse Gas Initiative is auctioning off the very first multi state permits for carbon dioxide emissions of companies.
Over 200 companies participate in the 10 state scheme and it’s the first exchange that’s going to reflect what future Federal mandatory schemes will look like. Participants are mostly energy generation companies but also many companies speculating that it’s a good idea to buy certificates for the right to pollute in a future government program.
The very first auction put the valuation of a ton of CO2 at just over $1.86 and 12 million certificates were traded. For every ton of CO2 one allowance was issued. Real numbers have been put on the levels of pollution that are going to have to be eradicated as a result of this cap and trade initiative. The combined states’ annual pollution levels of 188 million metric tons are reduced by 10 percent by 2019 if all goes to plan. The exchange’s compliance period starts in 2009.
The RGGI will fulfill a pioneering role in the US and will be under close scrutiny of especially federal lawmakers not yet decided on which route to go. The exchange itself is modeled on the European Union Emissions Trading Scheme and also on the US sulfur dioxide emissions market.
If the goings on in Europe are by any means indicative of the future awaiting the RGGI, many hurdles have yet to be taken. Our colleagues at Greenbiz.com reported that the initial proceedings showed up some difficulties already. Buyers could only access 45% of the certificates on offer because regulatory delays prevented New Hampshire, New York, New Jersey and Delaware to participate in the live online auction. It’s as yet uncertain when the troubles will be resolved.
Greenbiz predicts there could be some price volatility because of the limited supply. It will also be difficult to determine whether the price levels are right, something that’s going to be impacted too by the level to which individual states will try to change their cap levels.
So, you might as, why even bother with this? The short answer simply is opportunity. The price of carbon might initially be incredibly low but analysts are talking of a $5 price a ton after the first phase already. What’s more, the market might very well develop in much the same way as the European Trading System did, which kicked off in 2003. Analysts there are talking up the price of carbon to double digit numbers by the end of 2009. After having struggled through days during which the Dow Jones average has put in very meagre performance, those numbers are simply energizing. Over the last 8 years, the average rose only 2 percent and at the moment it’s only hanging on by the skin of its teeth. For how much longer?
That’s not to say that Green will deliver instantly or that the sustainable economy will be consistent any time soon. Even the most savvy hunter will have trouble finding all the green they want. It might take two, three, maybe seven years before offset markets have matured. A report in the Scientific American suggests that the entire RGGI initiative is actually set to fail in the first phase because it will not actually lead to reduced emissions. “Power plants are already emitting less than the proposed cap – due to take effect on January 1, 2009, and based on projections from 2005 – thanks to slower than anticipated growth in electricity generation”, according to David Biello, who wrote the story. He’s got a point. Companies are well on their way to reduce their carbon emissions off their own accord by an impressive amount. Official data indicate that 233 power plants in the ten participating states were responsible for emitting around 164 million metric tons of carbon dioxide. That’s 24 million metric tons below the suggested combined cap! Looks like the mistake that the Europeans made and which caused the carbon price to be zero for a considerable amount of time. Insiders say that they expect the Federal governments to evaluate the level of allowances after the first compliance period.
Meanwhile, Greenbiz also tips us off on the Western Climate Initiative, in which seven states and four Canadian provinces participate, is meant to kick off trading in 2012. This cap and trade scheme operates largely along the same lines as the RGGI. Its aim is to cut emissions 15 percent below 2005 levels by 2020. Once again, no instant opportunities but what we’re all going through at the moment is a learning stage in which science, consumers and markets are converging ever closer.
Less slow solutions to fill up a green portfolio could also be to study opportunities in the employment sector. The Center for American Progress only recently reported on the economic dimensions of the thousands and thousands of people that are going to be employed in the green sector. It has interesting observations on the impact of this notably on the shift of the economy because of the new jobs’ replacement of those lost due to the high oil price and the housing troubles.