So the Fed came out with guns ablazing, slashing interest rates by 0.75%.

But the markets are yet to find solace. They’re still choking on a toxic cocktail of foreclosures, inflation, oil prices and the credit crunch. Michael Metz, chief investment strategist at Oppenheimer, is not among the optimists. He thinks the US is facing the worst recession since World War II.

It’s tempting to think that a US recession will be good for the environment. Less wealth means less consumption, and so less burning of fossil fuels. But it just ain’t so: for one thing, China and India have more than enough demand to soak up any slack in oil consumption. Oil prices are not going to drop to levels which reduce the quantity pumped.

And if there is a serious recession around the corner, it doesn’t bode well for the fledgling carbon market. Here’s just a few reasons why:

• Consumers feeling the pinch will buy fewer carbon offsets. If you’re worrying about paying your next bill, you don’t have spare dollars to spend on the future of the environment.
• Companies facing shrinking profits will be forced to cut back on expenses. That means less corporate offsetting, and fewer investments in green facilities and production.
• Remember 2000? In a world of shrinking liquidity, the first casualties are high risk investments. Expect a drop in venture capital inflow, and so less R&D in clean tech and renewable energy.

All that is bad enough. But worse still, politicians will be pressured to focus on the economy and nothing else. With the likely inaugration of a pro-climate president in 2008, hope has been growing for serious US carbon emission legislation in 2009-10. But carbon caps or taxation are an expensive luxury for an economy struggling to survive.

What to do? As in every downturn, the smart ones are those who take the long view, planning and investing for the recovery just out of sight. No matter what happens in 2008, Carbon Catalog will be developing and growing, ready and poised for the good times to roll.