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On April 2, 2007 the U.S. Supreme Court made a pivotal decision regarding environmental regulation. The nation's highest Court ruled that the U.S. Environmental Protection Agency (EPA) acted improperly by refusing to regulate greenhouse gas emissions under the Clean Air Act. The Clean Air Act was enacted by Congress to monitor and regulate common power plant emissions -- such as acid rain-causing sulphur dioxide and nitrous oxide. The Act is the basis for the current cap-and-trade system employed in the U.S. This system allows power plants polluting above their regulated maximum emissions to buy credits from cleaner plants. Thus, dirtier plants have the choice of buying potentially expensive credits or taking steps to reduce emissions of key pollutants. The Act also serves as an economic incentive -- cleaner plants are able to recoup some of their pollution mitigation costs by selling some of their environmental credits. The Court's mixed 5-to-4 ruling (and dissenting opinions from several Justices) indicated a rather split outlook on the issue. Further, the direct impact of the Court's decision is unclear. However, most believe that this ruling will eventually lead to a cap-and-trade system to regulate emissions of carbon dioxide, just as for sulphur dioxide and nitrous oxide. And it's not just the Supreme Court ruling that makes such regulation more likely. Several state governments have already enacted legislation aimed at tougher stances against carbon dioxide and other common pollutants. California, for example, has already passed a law that requires a 25% cut in carbon emissions by 2025, with the first major provisions coming into effect in 2012. And New Jersey passed a law in July designed to cut greenhouse gas emissions by 16% by 2020 and 80% by 2050. At least ten other states have some sort of regulation in the works designed to curb carbon emissions.  But
U.S. intervention is only the beginning. The EU, for example, already has a
carbon cap-and-trade scheme in place for trading emissions credits. As the
chart to the right shows, EU carbon credits have become expensive in recent
months, providing a real economic incentive for companies to become green
and find ways to cut emissions.And it's not just government that's pushing for new regulations. A diverse group of companies in sectors as varied as energy, mining, chemicals and automobile manufacturing is also promoting some sort of carbon regulation or mitigation system. In most cases, these firms want to ensure they have a voice in how carbon targets, mandates and regulations are drafted. Nor is it just the developed world. The Chinese government has become increasingly concerned about the air and water pollution that plagues its major cities -- China is home to ten of the world's most polluted cities. The country is now promoting regulation to reduce pollution, and has experimented with the idea of limiting vehicle use in Beijing to bring urban pollution under control ahead of the 2008 Olympic Summer Games. Stiff Regulation Paves the Way for Alternative Energy Whether you agree with all this legislation or not, it's quickly gaining momentum, and it plays right into the hands of the world's alternative energy firms. Not surprisingly, companies involved in alternative power technologies, such as wind, solar, geothermal and biomass (the burning of wood and organic waste products), are getting plenty of attention from investors these days. In many cases, these firms are also the recipients of direct and indirect government subsidy. And, of course, the regulations discussed above are another potential source of income. Since most of these alternatives emit little in the way of pollutants, companies producing energy from green sources are able to sell pollution credits and realize significant gains. Rising Commodity Prices Although the environment is an extremely important factor, there are plenty of other reasons why alternative energy is in the spotlight right now. Consider that as recently as 2002, crude oil was trading below $20 per barrel and natural gas cost less than $2 per million British Thermal Units (BTUs). Now, oil is trading at close to four times its lows, while natural gas is up +250% from its 2001 bottom. Naturally, rising prices for key energy commodities spells rising costs for consumers. For the first time in history, drivers have been consistently paying more than $3 for a gallon of gasoline over the past year. And electricity produced from natural gas is becoming increasingly expensive alongside volatile gas prices. Alternative energies offer a way to cut dependence on fossil fuels and reduce this extreme variability in energy costs. And high prices aren't the only reason to be concerned about the world's dependence on fossil fuels -- geopolitical risk should also be considered. Specifically, oil and natural gas production in major energy-consuming nations like the U.S. and China is on the decline. Increasingly, these countries will be forced to rely on imports, and those imports will come mainly from the Middle East -- one of the world's most politically unstable regions. Improvements in Alternative Energy Alternative energies are not just a pie-in-the-sky dream. Wind power, for example, is price competitive with fossil fuels in some markets, such as Denmark -- which generates as much as 30% of its power from wind. And while the sun is still a relatively expensive power source, solar power is heavily subsidized in many markets, including California, Germany and Spain. Meanwhile, producers are continually making advancements that are bringing down the cost of solar power. Finally, regions such as Iceland have been able to harness the earth's own heat to produce power -- geothermal energy is clean and renewable. Of course, these are just three examples of alternative energies currently being deployed worldwide. With these points in mind, my staff and I recently went in search of the world's most promising alternative energy plays. In the table below, we offer a long list of companies set to benefit from the growth in alternative energy technology. And in the text that follows, we profile a handful of the group's most attractive companies. Important Note: Throughout the remainder of this article, Editor Paul Tracy and our research staff provide the names of 21 companies that should benefit from the push for alternative energy. They then provide in-depth profiles of their six favorite firms. However, in order to view the remainder of this article, you'll need to subscribe to our premium newsletter -- Market Advisor. After you subscribe you'll receive immediate access to this full article, as well as our monthly Market Advisor newsletter and a host of additional premium content. Please visit one of the following links to continue...
Paul Tracy founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to that he spent several years as Managing Editor at a multi-million dollar financial publishing firm with over 150,000 subscribers. In addition to his role as managing editor and lead financial writer, he was also responsible for equity research and managing a team of seasoned professional financial writers, researchers and market commentators. Paul's previous experience includes a position at Robert W. Baird & Co.'s full-service brokerage operations as well as economic research work on a Money and Banking project funded by the National Bureau of Economic Research. He has also spent time doing outside consulting and research for the University of Virginia, has appeared as a guest expert on several prominent financial radio shows, and has been a featured speaker at various investment conferences across the U.S. Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
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