On the market's upside, revenues could reach US$505 billion in 2020, or nearly nine times the level in 2005, and hit US$1.02 trillion 10 years later, the bank said.

As a comparison, the gross domestic product of the the United States, the world's largest economy, hit US$13.2 trillion last year.

"The global risks posed by climate change are driving spending and investment in clean energy solutions, which (unlike the oil shock that spawned the first wave of energy solutions in the 1970s) is durable and accelerating," Morgan Stanley said in the note.

The bank also initiated coverage of the clean energy industry. It rated the following companies as overweight-volatile: thin film solar company First Solar Inc, solar company SunPower Corp, biofuel company VeraSun Energy Corp., and emissions reducers Fuel Tech Inc.

The report cautioned that sales could be reduced in the unlikely event that world governments change direction on climate change policy and stop taking steps to monetize greenhouse gas emissions. Peace in the Middle East could also push down oil prices, which could slow growth.

Shares in renewable energy companies also could be volatile in the short term, it said.

The bank was particularly bullish on solar power. Market penetration of solar in electricity generation could rise from levels almost too small to measure in 2005 to 11.2 percent in 2030, while wind power could go from 0.9 percent to 9.6 percent by 2030, it said.

Solar would take more market share as costs decline for things like panels that convert the sun's rays into power. The cost of solar power should sink from US$8 per Gigawatt installed in 2005 to US$1.60 per GW by 2030. Wind power, which was US$2 per GW. would cost about the same through 2030, it said.

Penetration of biofuels like ethanol and biodiesel in transportation could grow from around 1 percent in 2005 to 21 percent in 2030, it said, assuming cars boost fuel efficiency.

Morgan Stanley was not the only bank this week to highlight green energy. Government efforts to tackle climate change are creating a "megatrend" investment opportunity that should tempt even those skeptical about the nature and pace of global warming, Deutsche Bank analysts said on Thursday in China.

Deutsche Bank has attracted about US$8.55 billion into climate change funds, which target companies that cut greenhouse gases or help people adapt to a warmer world, in sectors from agriculture to power and construction.

Global investment in renewable energies jumped to a record US$100 billion in 2006 and will likely rise to about US$120 billion in 2007, the UN Environment Program said this summer.

Morgan Stanley owned 1 percent or more of a class of common equity securities of green energy companies Aventine Renewable Energy and ReneSola and within the last 12 months managed or co-managed public offerings of securities for EnerNOC, First Solar Inc, Motech, SunPower Corp. and VeraSun Energy.

The bank said late last year it planned to invest some US$3 billion in carbon markets over the next five years.

(Reporting by Timothy Gardner)