Betting on Climate Change

Today was not a good day for the TSX  – down 500 points at the time of writing and its lowest close in four years. With the markets whipsawing daily, investors are looking for is a safe place for their money. The climate change sector could be that haven, according to a new report by Deutsche Asset Management.

This sector is made up of all those firms that are invested in environmentally friendly services – alternative energy, water, transport and emissions technology. The German bank estimates long term growth by this sector, especially those projects that are supported by the government. Given that climate change is all but inevitable, there is a historic opportunity to shift to green infrastructure, it says. The International Energy Agency estimates that about $45 trillion will be needed between now and 2050 to bring many of the clean tech alternatives to market.

One of the problems with investment in this sector is the profitability of these companies is highly dependent on the price of oil. When oil is high, it makes sense for private firms to invest in an alternative. But news of a recession has sent oil spiraling, and alternative energy stocks have taken a particularly bad beating. For example, the Claymore/MAC Global Solar has fallen 65 % since it started trading in mid April. The credit crunch doesn’t help either – it’s becoming increasingly hard to finance any existing commitments in these new technologies. Of course, the flip side is that the devaluation of these stocks means now is probably a great time for investors to pick up a bargain in this sector. Still, many clean tech companies were left high and dry during the recession of the early 80s, as oil price tumbled. Unfortunately, it looks increasingly likely that history will repeat itself.

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