The Green Bubble Cometh - Part 1

Guest Contributor Michael Green, speculates on what he thinks will bubble up next. 

______________________________________________________________________

There has been a lot of discussion in the media about the 2008 housing bubble that we have just gone through. Economic bubbles are nothing new and have been around for a very long time.

We can look back the 17th century and the Dutch tulip bulb bubble. Everyone was trading tulip bulbs and people thought the prices would increase forever making everyone rich. Not so. This same process has been repeated throughout history with cycles of boom and bust.

This brings me to what I feel will be the next bubble. Get your wallets out and open them up as it is time to “go green”. “Going Green” is the latest buzzword to hit the street and just like in the late 1990s when the “internet” had buzz, this has all the initial hype needed to start off any bubble. Indeed for any bubble to happen, the first thing needed is support. So do we have the support to start the process off?

In this article, I will take a look at the support needed to create the conditions for the Green Bubble and then discuss how it might develop.

How does one support a Bubble? Support has to come from three main areas:

1. Citizens need to buy into the concept
2. Government needs to support the concept through legislation.
3. High enough level of demand needs to arise to justify supplying the financial products allowing people to participate in the market to allow the bubble to form

Over the past several years, there has been a slow but gradual increase in awareness of environmental issues in society. This has been building for the past 30 years and it has reached the critical mass needed to really effect change. Government policies in turn reflect the moods of the society that support them.

We have had the Kyoto protocol around for several years but the United States has still not ratified this treaty and has been dragging it feet for years casting doubt on what the policy of the U.S. really is.
In addition, most of the signatory nations have not met their emissions reduction targets anyway. From this point of view it looks like the protocol has been a failure.

However, there is still the commitment to do something even if everyone can not agree on what exactly should be done.

The recent G8 Summit meetings and the announcement to reduce carbon emissions by half is a promising development even though it is not clear how this will be accomplished. In December, we have the United Nations Climate Change Conference 2009 which will take place in Copenhagen to look forward to. All are promising but perhaps the biggest single development so far is the American Clean Energy and Security Act of 2009.

This act has several components which I see as key to helping provide support for the Green Bubble.

First, the cap and trade program which provides emissions allowances in the form of carbon credits to industries (but these credits will be gradually reduced year on year). Second, it sets clear emission targets to be met.

For the first time the world’s largest economy is setting up mandatory limits on the emissions of greenhouse gases.

Carbon credit trading between institutional investors has been around for several years in various forms but now it is about to get far more meaningful and far more valuable in the U.S. now that there are clear targets to be met.

Now that the world’s largest economy has this system in place this can only spur other nations like Japan to also develop their own systems. Japan currently has a trial carbon trading system in place since October 2008 but it is based on voluntary targets. There is however the desire of the Japanese to move to a more formal system with mandatory carbon emission reduction targets.

Part 2 of The Green Bubble Cometh will appear tomorrow. 

______________________________________________________________________________________

Michael Green has been living in Japan for 9 years and resides in Tokyo. He has worked in the Financial industry for most of his career. He is a specialist in Business Process Re-engineering and Project Management.