Each month government spending and policy expert Andy Obermueller brings readers an in-depth look at how governments are creating hundreds of profitable investment opportunities.

All security prices are listed as of the close of trading on May 29, 2009.

   Dear Friends,
  
   I have seen the future, and it looks a lot like Gillette, Wyoming.

   This little town of about 20,000 people on the windswept western prairie bills itself as the energy capital of the nation.  That's underselling things more than a little.  In a few years, Gillette could well be the energy capital of the world.  As you read this, the most important energy technology on earth is being developed there.  A massive company with significant ties to the U.S. government, is building a 100-megawatt pulverized coal power plant.

   With a twist.

   But I'm getting ahead of myself.

   This month's issue of Government-Driven Investing is centered on energy.  I dove into this topic because of the national reach, its primacy in the headlines and the big profit opportunities available.  What I found out floored me.  In today's issue I'll be telling you about an emerging technology that I believe will be a gold mine in light of the government's upcoming environmental regulation -- the "cap and trade" bill, which I describe in plain English below.

   This piece of game-changing technology is a unique process that will allow the nation's power plants to burn coal without emissions. The companies that control this technology are going to make early investors a fortune. I'll tell you how this breakthrough works and which company is going to benefit from it...

Cap-and-Trade
The Secret to Clean Coal Is Nitrogen, Not Carbon

   The formula for building wealth in the CO2 space is simple: N.  That's the chemical symbol for nitrogen, one of the most common elements on earth.  And it's the key to clean-coal technology.

   Now, you're going to think I'm nuts, but coal, that dirty old industrial power source, will prove to be as "green" as wind power.  A very simple chemical process -- one taught in fourth-grade science class -- proves it.  First, let me give you some background.

   A bill before congress sponsored by Reps. Henry Waxman and Edward Markey -- "The American Clean Energy and Security Act of 2009" -- is the most significant piece of environmental legislation in decades.  The legislation, currently in committee, has huge congressional support and is a crucial element of Barack Obama's environmental agenda.

   For years, the U.S. Environmental Protection Agency (EPA) has regulated only a handful of airborne substances, among them lead, particulate and sulfur dioxide.  But now, after an important ruling brought about after a Supreme Court case that started in Markey's home state of Massachusetts, the EPA is taking steps to use its authority under the Clean Air Act to regulate the emission of carbon dioxide.  The Waxman-Markey bill seeks to dramatically reduce CO2 emissions using a system commonly known as "cap-and-trade."

   Cap-and-trade works like this: The U.S. government sells allowances that give companies the right to create a certain amount of carbon emissions.  Companies must buy enough allowances to cover what they emit.  If they produce less emissions, then they can sell their leftover permits to another firm.  If they run short of allowances, then they have to buy more.  That's the "trade."  The "cap" is that each year the government sells progressively fewer permits, incrementally lowering the amount of greenhouse gases pumped into the air.  The law would cover about 13,000 entities in the United States.

   Two things produce significant CO2 emissions: Cars and coal.  Let's look at coal.  The U.S. uses 1.2 billion tons a year, primarily to fire 1,470 electric power plants that produce a total of 336,040 megawatts of power.  That's more than enough juice to power every home in the country, with streetlights and ball fields thrown into the bargain.  While everyone is justifiably concerned about the nation's oil supply, absolutely no one is even the slightest bit worried about running out of coal.  That's because we sit on an enormous supply of the stuff: 489 billion tons, enough for four centuries of use.

   Not only does the United States have plenty of coal, but, in accordance with the laws of supply and demand, it's cheap.  It's also easy to move by rail.  And here's another important fact: Coal is burned in power plants that would cost $672 billion and take years and years to replace.  That's obviously not going to happen, certainly not by the time cap-and-trade takes effect in the next few years.

   The bottom line, then, is that our country and scores of other industrialized, power-thirsty  nations are going to continue to use coal.  So if coal and cap-and-trade are both the inevitable future -- and they both are -- then there's only one solution.

   Industry must find a way to burn coal in a fashion that produces no emissions.

   How Coal Plants Work Today -- and How They Will Work Tomorrow

   It's worth reviewing how a coal-fired plant works.  Basically, the plant burns coal to heat water and create steam.  That steam drives a turbine that spins and generates electricity.  Now, the two most meaningful advances in coal-fired plants have been pulverizing coal, which makes it burn more efficiently, and adding technology that reduces particulate emissions so as not to cover the country with fly ash.  Neither of these two advances is particularly recent.

   Coal-fired plants use "ambient" air.  That's a five-dollar way of saying "whatever's outside."  Most of the air out there, that is, most of what we breathe and what coal-fired plants burn, is gas nitrogen.  In fact, ambient air is 78% nitrogen and about 21% oxygen.

   It turns out that all that nitrogen is the problem.  When coal is burned using ambient air, the resultant exhaust, called "flue gas", is a bunch of nitrogen byproducts, carbon dioxide and water vapor.  The water vapor is easy to siphon off, but the nitrogen and the CO2 are hard to separate.

   The key to zero-emission coal is being able to capture a stream of pure carbon dioxide, with no nitrogen byproducts.  But that's hard to do when you have to contend with a vast quantity of nitrogen: In fact, flue gas from coal-fired plants is only about 12% CO2.  So if you could figure out a way to get the nitrogen out of the smokestack, that would be the ballgame.  All that would come out of that product would be pure water vapor and pure carbon dioxide, which are very easy to separate.  Once separated, the CO2 could be stored -- tanked for industrial uses, shot into alternative extraction oil wells or otherwise put back into the ground whence it came.  And the leftover water?  Harmless.

   Which brings us back to Gillette, Wyoming.  That's where the latest advance in coal-fired electric generation will be tested.  The plant will be exactly the same as every other coal-fired plant in the country, except that it will burn pure oxygen.

   You see, the best way to get nitrogen out of the smokestack is not to burn the stuff at all.  It's an old trick, actually, something welders have been doing for years.

   This "oxy-fuel" technology -- firing plants with pure oxygen instead of the ambient air -- means the country can still use cheap, abundant coal to generate power.  And best of all, the companies that develop and implement this oxy-fuel technology are going to make a fortune.

   We are talking about massive numbers: The United States alone emits 7.1 billion metric tons of CO2 a year, 35% of which comes from coal.  That's 2.5 billion tons a year just in this country.  Federal statistics show that "while natural gas is the fastest-growing energy source for electricity generation worldwide, coal continues to provide the largest share, by a wide margin, of the energy used for electric power production.  In 2005, coal-fired generation accounted for 41% of world electricity supply; in 2030, its share is projected to be 46%."

   Of course, this means nothing if the United States is going it alone.  But it's not.  Here's a little morsel of goodness I ran across in the Wall Street Journal on May 22nd:

   If that's the task, then there's a lot to be done: We have 325,000 megawatts of coal-fired power here in the States.  China has 550,000 megawatts.  Japan has 40,000, Germany 50,000, Britain 30,000.  Each of these plants is going to need to be retrofitted for oxy-fuel technology.

   Right now, the technology is pricey: The Department of Energy says it costs $150 per ton of CO2, or up to 4 cents for every kilowatt hour of energy.  That's way too much: Such an increase would add +36% to the average 11 cents per kilowatt hour that electricity costs in the United States.  But if the owners of the technology could get that price down to $60 a ton or less, then the world will beat a path to their door.  And quickly: The European deadline is less than 10 years away.

   Here at home, there's a bit of legislation that you need to be aware of.  It's the Waxman-Markey bill I alluded to earlier.  You see, the first section of the bill, "Title I," provides for the support of the development of carbon-capture and sequestration technology.  Scientists at the Department of Energy recognized the inevitable future long before I did, and they've helped dozens of researchers work on experiments to find the best carbon capture and storage (CCS) solutions.

   Some of the players in the race for discovery have been academic institutions, but the world's major corporations have been the real driving force behind CCS research (their vote counts; they write the checks).  These executives' assessment of the potential is the same as serious environmental leaders'.  Both groups know that carbon capture is the only way to cut emissions in a meaningful way.  The Intergovernmental Panel on Climate Change estimated that CCS can reduce global emissions by up to 55% by 2100.

   Many of the companies that are funding this research are large power companies, but the real sign that there is huge money to be made is that most of the leading supporters of the technology are deep-pocketed private companies.  But among the big-money private entities and the closed-door venture capital funds are a select few players with a serious stake in oxy fuel.  The most promising company is (Stock Name Reserved For Paid Subscribers).

   (Stock Name Reserved For Paid Subscribers) is a $23.3 billion company that owns more than 200 patents related to oxy-fuel technology, which it tends to call by the more specific name -- oxy-coal technology.

   In the meantime, (Stock Name Reserved For Paid Subscribers) is the leading industrial gas supplier, one that was able to post an earnings increase in 2008 over 2007, a feat few companies managed.  Its products are used in a diverse array of end-markets, which insulates it somewhat and allows for steady, non-cyclical growth, as you can see from my chart.

   As a global industrial giant, (Stock Name Reserved For Paid Subscribers) is well positioned to attract large utility customers throughout the world.  Only 55% of its revenues come from North America.  The company also has a strong presence in South America, Europe and Asia -- all places where coal is a major source of electric power.

   Action to Take --> (Stock Name Reserved For Paid Subscribers) is a strong buy under $80 per share.  I plan to add shares of (Ticker Reserved For Paid Subscribers) to my Government-Driven Investing Portfolio at the closing bell on Monday, June 1st.  

This was just an excerpt from my June issue of Government-Driven Investing. To access the complete issue... which includes the name and ticker symbol of this "oxy-coal" stock, subscribe to my newsletter. You can subscribe right here.