In recessions, investors tend to return to safe havens like government bonds, the US dollar, gold, consumer staples and drug stocks, as cash flows out of what are considered more discretionary sectors.
Just a year ago funds and retail investors were hungry to invest in green projects. With oil topping $147, alternative energy companies were hot. And the concerns about climate change lured cash into ways to reduce carbon emissions.
When the credit crunch became a crisis, it looked like environmentally-friendly companies and investment vehicles would fall out of favor.
But the market pros tell CNBC that green is a sector that can't be ignored and investors with a long-term view will benefit from continued government spending on environmental projects — not to mention green plans to stimulate the economy — necessary change in the auto industry and the need to provide the world with clean water.
The Carbon Challenge: Cap & Trade vs Carbon Tax
Cap and trade guarantees emission reductions unlike a tax which tries to change behavior. With cap and trade, the price of carbon will rise and fall with the economy, as opposed to a tax which is less certain in terms of its volatility. People think a tax may be far simpler, but with 4,000 pages on the carbon tax code, it will not be a simple exercise or transparent, Andy Stevenson from NRDC.
"The carbon tax is simple and politically feasible because it would collect revenue and when we get that revenue we can recycle it by reducing other taxes. Smart tax policy should tax bad things and reward good things and if we have a carbon tax in there, it will be a lot easier to do. Cap and trade is not really the best system because the permits are going to have an extremely volatile price, and that volatility will discourage investment in things like alternative sources of energy that we need right now," Kevin Hassett from American Enterprise Institute told CNBC.
The Race to Green Mobility
In crises there are great opportunities. It is a great opportunity to make our cars less expensive. It's important for the car manufacturers to compromise and make more alternative fuel vehicles in the future, like hybrid and electric cars, because we've got to reduce the greenhouse gas emissions, California Governor Arnold Schwarzenegger said.
He told CNBC that California wants to stick to its tough emission standards and would like all states to adopt the states standards. Schwarzenegger added that we need to stick to alternative energy policies regardless of oil prices.
Energy Investment Will Promote Growth
The city of Miami announces a major energy investment in smart grid technology and renewable energy.
"Green investing is good for investors, is good for our employees, is good for our customers, Jeff Immelt, chairman & CEO of General Electric (GE is the parent company of CNBC). This is the time to invest in innovation, he added.
"Clean, affordable energy is going to happen globally and the technologies that are involved, whether it's clean coal or smart grid or nuclear energy, those are going to happen and they are going to happen right now. And the US is either going to lead or we going to get left behind… I don't think the administration has the luxury of not focusing on this right now, this is going to be one of the major growth industries in the world within the next decade," Immelt told CNBC.
"You're beginning to see governments and companies realize that this (technology) is one of the areas that's going to grow well… Technology will play a key role in the (economic) recovery, also the smart use of electricity, how you do this in an environmentally friendly way," John Chambers, chairman & CEO of Cisco Systems said.
Clean energy will be a job growth engine like the interest was. You're going to see a different generation of automobiles, a different generation of appliances in the home, a different generation of the consumer being able to control their destiny. It will drive a whole bunch of other industries and products, Chambers told CNBC.
Britain to Go Greener
Prime Minister Gordon Brown is hoping to increase Britain's output of green goods and services by 50 percent over the next few years. Kimberly Tara, CEO of FourWinds Capital Management, believes that there will be significant moves in the sector within the next few months and into the next 3-5 years.
Upbeat on Green Autos
"We are going to see the auto part sector, essentially the replacement part sector, is going to show growth," says Vivek Vaidya, director of transportation and logistics consulting at Frost & Sullivan. Car sharing will also become more popular during the crisis, and companies like Zip Car will prosper, Vaidya predicted.
Although carmakers have been battered by the economic slowdown, auto parts and repair companies are prospering as consumers maintain their current vehicles, he told CNBC. US companies O'Reilly Automotive , Advance Auto Parts and Autozone have outperformed their auto-making peers General Motors and Ford so far this year.
"Once this crisis is over, the green car is going to be the big thing," says Vaidya, adding that Toyota and Honda are the best-placed companies in that space. He sees the auto sector bottoming in the third quarter or the fourth quarter of 2009.
Who's Winning the Hybrid Race?
Honda's unveiling of the Insight, which is nearly 23 percent cheaper than the Prius, has given Toyota a run for its money in the hybrid car contest, according to Vaidya. He sees the green car battle being fought mostly in the US, Japan and production bases like China.
Worried About Water
Water is a big concern in China, says Jim Rogers, author, adventure capitalist and international investor, who's bullish on water and agricultural treatment firms.
"Water treatment in China has to boom; they have a horrible water problem," he says. "Agriculture in China has to boom; they're spending huge amounts of money to revitalize agriculture."
Invest in Energy & Infrastructure
Investors should invest in the clean energy and infrastructure sectors, advises King Lip, portfolio manager at Baker Avenue Asset Management. He tells CNBC that these sectors will benefit from Obama's commitment to revive the US economy.
Green Energy: Converting A Nation
Boone Pickens, CEO of BP Capital, gave AT&T's move to convert 8,000 fleet vehicles to run on natural gas within the next five years two thumbs up. "We have to cut down on foreign oil imports," says Pickens, who's proposed a complex plan to increase wind energy, reduce oil and gasoline consumption and redirect natural gas supplies to motor vehicle use.
"We're overwhelmed with natural gas…so it's quite an opportunity for America to switch over their heavy duty 18-wheelers to natural gas and the light duty to the battery," says Pickens.
Pickens sees oil at $75 a barrel by year-end and predicts it will go higher in 2010 if there is a recovery in the global economy.