SmallCapSentinel.com: Report Released for Investors of Clean and Alternative Energy Equities GWSC, AKNS, CLNE, FLIR, QTWW, RZ, XWES
By Integrity Media - June 27th, 2009
By Kris Davis, SmallCapSentinel.com
For the last two nights, I’ve fallen to sleep attempting to read the proposed 932 page Clean Energy bill (of which the table of contents consumes the first 8 pages) that President Obama has been so adamantly pushing. The bill narrowly passed the House of Representatives by a vote of 219 to 212 on Friday and it will now go to the Senate where most agree that it will face much tougher scrutiny. With each state having equal representation, the 25 that rely heavily on coal are likely to vigorously oppose it.
Nonetheless, we should have a final verdict in the near future, although the debate will no doubt continue.
What concerns me aside from the “cap and trade” issue is that there isn’t any way that everyone (outside of staff working for those) voting on this bill has read it in its entirety. Even if they have, I’m certain that they didn’t understand all the legalese as evidenced by some of the following sections:
Title 1, Subtitle E, section 146. Inclusion of Smart-Grid features in appliance rebate program.
Title 2 – Subtitle D Sec. 243. Clarifying election of waste heat recovery financial incentives.
Title VIII Part 4 Subtitle E Sec. 351. Regulation of certain transactions in derivatives involving energy commodities.
I can only imagine what has been “slipped” into this enormous and complicated bill. Mercifully, there are many summaries of this bill, on which I (and hopefully members of Congress) will rely on.
First of all, I want to address what I see as the biggest issue in this bill; cap and trade. For those who think this is a baseball term, let me clarify. Companies who create carbon emissions above a certain amount would have to buy or trade emissions credits from someone below a certain amount. This, in theory, would create a new market for carbon that could reach into the trillions within a few years of implementation. The expectation is that this will reduce carbon emissions by 17% by 2020 and 80% by 2050. The conjecture is the economic enticement to reduce emissions will create a new green energy business expansion.
Dissenters will argue that the consumer will pay for this via increase in prices of energy, food, and manufactured appliances and products, and those companies will move overseas to avoid the tax, thus reducing jobs.
Proponents will espouse that the decrease in pollution will have a net health and economic benefits that will be realized via new energy technologies and industries.
The current estimate (according to the nonpartisan Congressional Budget office) is for a net impact on the average household of $175 a year by 2020, with rebates available for poorer families of course.
However, independent studies have been conducted by numerous organizations such as the Heritage Foundation, who came out with the following analysis of the proposed Waxman-Markey bill:
The Heritage Foundation found that unemployment will increase by nearly 2 million in 2012, the first year of the program, and reach nearly 2.5 million in 2035, the last year of the analysis. Total GDP loss by 2035 would be $9.4 trillion. The national debt would balloon as the economy slowed, saddling a family of four with $114,915 of additional national debt. Families would also suffer, as the bill would slap the equivalent of a $4,609 tax on a family of four by 2035.
Heritage is not alone in its assessment. Other institutions such as Brookings and The National Black Chamber of Commerce also project huge job losses and point out significant laws in the budget that signals a low cost per family.
On the flip side, it is a long term vision that would invest nearly 200 billion in clean technologies and require higher energy standards. These long-term benefits could easily outweigh the short-term costs.
Supporters of the bill claim global warming is real, and its impact will be significant if we don’t dramatically reduce the amount of carbon dioxide released into the atmosphere. The cost of doing nothing will be far greater than any short-term financial costs this bill creates.
The bill also focuses on our energy independence which will eventually create more jobs and industries, produce exportable goods and protect our national security interests.
With so much debate surrounding this bill, how can you invest without knowing the eventual outcome?
Regardless of whether this bill passes, some variety of energy bill will eventually pass and I would suggest when that occurs there are plays both short and long term that an investor should consider.
It will initially cost more, so invest in energy companies that have substantial business revenue from overseas, like Shell. Also, utilities will likely pass along the cost to consumers, so companies like Duke Energy and Exelon could benefit long term.
As the increased costs are taken in and redistributed to alternative energy companies, they will benefit from restrictive mandates and newly developed technologies. Any company that is on the cutting edge of sun, wind, geothermal, natural gas or nuclear power could be the Exxon of the future.
Or you could simply invest in a firm that will likely play this energy bill like a fiddle. Goldman Sachs made a killing on the mortgage market by accurately hedging and they are even expected to pay out record bonuses this year. I think they could do the same with this new energy market.
Instead of viewing this bill as good or bad, I chose to view it as a win-win for savvy investors.