Tom asked earlier what the "anarchic" disintegration of Lehman Brother’s carbon trading desk — taking place within the broader disintegration of the entire company — means in the bigger picture.

And the answer, most likely, is pretty much nothing. This is true for a variety of reasons, not least among them that Lehman Brothers was a small player in the carbon markets. The center of gravity in the carbon-trading world is in Europe. Beyond that, the carbon market itself is just one corner of the energy finance universe. Lehman is a corner of a corner, and anyway the disappearance of a single trading desk is nothing really to fret over.

A trickier question is what affect the broader issues in the financial markets have for the development of clean energy. And, well, it’s hard to say, as all sorts of countervailing forces are at work. As Tom also noted, one short-run effect of the economic turmoil in the financial industry is to make a carbon caps a trickier sell in New York. Looking more broadly, I see at least four large trends affecting the clean energy market over the next few years:

  1. The credit crunch. Banks, you may have noticed, are having a hard time of it right now. This is an unequivocally bad thing for the clean energy sector. Clean energy projects typically entail massive up-front capital outlays, followed by relatively low ongoing costs. Banks provide the money for those up-front expenditures in the form of loans.

    Except that right now, banks have retreated into their pillow forts. One analyst projects that, by 2020, the clean energy sector in Europe will require about 85 billion euros per year in financing to meet E.U. goals. Given the current pace of lending, debt finance will fall about 21 billion euros short. I’d put very low confidence in these specific numbers, but they are illustrative of the problem faced by energy developers who need cash to turn blueprints into megawatts.

  2. Fossil fuel prices. To simplify: high fossil fuel prices make clean energy projects look more attractive.

    There are many people paid more money than to me predict the direction of fossil fuel prices, and I won’t pretend to have any special insight here. Based on my own analysis, which involves drawing a supply and demand curve on piece of graph paper with a crayon, I predict that fossil fuel prices will continue to gradually rise for years to come, while also exhibiting high volatility. (I further predict that the press will continue to cover movements in spot prices as though spectating a ping-pong match.) The underlying upward trend in fossil fuel prices will be positive for clean energy development, but the volatility will blunt some of the benefit by injecting a high degree of uncertainty into the market.

  3. Supply chain constraints. One inevitable consequence of the current clean energy boomlet is that manufacturers are having a hard time keeping up with demand for basic infrastructure, such as wind turbines. This situation should eventually right itself, but it will remain a brake on growth in the near term.
  4. Global carbon policy. In fits and starts, governments worldwide are putting a price on carbon. And though the shortcomings of these early attempts have been well-noted, in aggregate policymakers are stumbling in the right direction. These efforts are helpful, even if they aren’t anywhere near enough.

So the scorecard on macro trends in the clean energy sector reads: credit crunch, very bad; high fossil fuel prices, very good; supply chain constraints, bad, but self-righting; global carbon policy, nascent, but directionally correct.

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I should add that these issues interact or reinforce one another in confusing ways, particularly in the short-term. A poor economy weakens the political will for aggressive carbon policy. On the other hand, the weak dollar seems to have made America enormously attractive to European clean energy developers.

Anything to add to this list?

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