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.