‘Tech Bubble’… ‘Housing Bubble’… and from the fringes of the media narrative, but well within the discussions of those following sustainability and renewable energy sectors is the ‘Carbon Bubble.’
The Carbon Bubble is, broadly construed, a view based upon the financial premise that the pricing of a stock or commodity is reflective of its value to humankind. However, such a general premise of pricing doesn’t provide all that much insight, but serves as a starting point. Therefore, the next step is to offer that pricing is at least reflective of the inputs necessary to deliver the output… but that only follows if the product is in a stable market of demand. The cost to produce an obsolete piece of technology likely exceeds what consumers are willing to pay, thus a view that the price is reflective of inputs + profit is only contingently true. For example, to build a new Betamax video player is unlikely to deliver you a sale that will recoup your costs… if you can find a buyer at all. Granted, you might find a single buyer for a vintage piece of technology, but unlikely enough that you could build a business off of building more Betamax players.
However, when demand is high and “the market” reflects stable or a future of increasing demand, then there is upward pressure on the net present value of the future cash flows of the product or firm share price. So far so good…