At the heart of the credit crunch now afflicting the global economy is the bursting of a great housing bubble throughout much of the developed world. Bubbles are, of course, as old as capitalism itself. Many of us in England recall learning at school of the great South Sea bubble of the early 18th century. But they seem to be coming more frequently nowadays. The housing bubble has burst only a decade or so after the Internet and tech-stock bubble. So we may not need to wait all that long to see the next one. And the most likely candidate is a green bubble, fueled by climate-change alarmism and government subsidies.

The twin elements of a bubble are euphoria and roguery, with the proportions varying from case to case. The coming green bubble, which is already attracting large amounts of venture capital and government money, displays both.

In the purely financial world, the business opportunity is in carbon trading, of which there are two forms. The first is the batch of global mechanisms set up under the Kyoto agreement and administered by the U.N., of which the Clean Development Mechanism (CDM) is the most important. If a country with a Kyoto target finds it too difficult or costly to reduce its CO2 emissions, it can instead buy "certified emission reductions" from developing countries (which have no such targets). "Certified" means the U.N. has to be satisfied that the reduction would not have occurred anyway and that it has not been offset by increased emissions elsewhere (if, say, it has been achieved by a factory closing down). But the system is impossible to police, and media investigations have revealed that many CDM projects are distinctly dubious.

The other form of notable innovation in this area is the E.U.'s own Emission Trading Scheme, which so far has proved a costly (and corrupt) farce by according emitters too much say over the size of emissions permits.

In the wider business world the burgeoning opportunity is seen as investment in renewable energy, for which massive government subsidies are available. The front runners tend to be biofuels for transport and wind power for electricity generation. The E.U. is still committed to increasing the use of biofuels, but it has belatedly been recognized that large-scale production of crops for fuel rather than for food is a major cause of the surge in food prices that is causing severe hardship in much of the developing world. Moreover, approximately as much carbon-based energy is used in the production of most biofuels as is saved by their use.

Wind power is little better. Hopelessly uneconomic on any substantial scale, since it requires a conventional power back-up for when the wind stops blowing, forests of wind turbines are rightly regarded in most countries as an environmental monstrosity.

But the main reasons why this is a bubble are more fundamental. Emissions trading has a future only if the Kyoto agreement, which runs out in 2012, is succeeded by an even more far-reaching and rigorous global accord. It is now clear this is not going to happen. And in today's harsher economic climate, governments are more likely to look for ways to scale back subsidies for renewable energy than to boost them. Nor are voters likely to be willing to pay the larger energy bills that "green" policies demand.

All the more so since there is compelling evidence that no global warming is currently occurring. Although the alarmists are in denial about this, figures published annually by the Hadley Centre for Climate Prediction and Research, an offshoot of the U.K.'s Met Office, show there has been no global warming so far this century, and recent research suggests this lull will last at least until 2015 — when warming is expected to resume. Maybe it will: we shall see.

But a 15-year lull is not merely significant in political terms. It also needs to be set against the fact that the warming which caused the frenzy lasted only 25 years. From 1875 to 1975 internationally accepted records suggest that the average global temperature rose by a total of just 0.2ºC. It was only the 0.5ºC rise recorded in the fourth quarter of the last century that produced the hysteria that has sparked this gold rush among green entrepreneurs and investors.

There may well be a green business opportunity. But my advice to would-be investors is this: make sure you get out before the bubble bursts.  Source