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Cap and Trade

Carbon Credits to Spur Cleantech Gains

Written by Nick Hodge
Posted January 30, 2009 at 4:54PM

Imagine if, every time you started your car, $5 was deducted from your checking account.

Two things would likely happen: 1) You'd be angry. 2) You'd drive less.

That's exactly how utilities that burn fossil fuels feel right now.

Because soon they'll be getting charged every time they fire up a coal or natural gas power plant, thanks to Mr. Obama's plan for a cap-and-trade system to limit carbon emissions.

And, just as you'd find alternatives to driving, utilities are about to trim as much coal fat as they can. In it's place, they'll be seeking out as many renewable generation assets as they can afford.

Whether you agree with it or not, coal used for electricity production is about to bear the burden of heavy taxation and regulation from Washington.

You may even see your utility bill rise. But there will be a forced transition to renewables that you can make an absolute killing on in the process.

Here's the skinny.

Cap-and-Trade, Carbon Credits, and You

As a matter of fact, cap-and-trade already fully exists in the U.S. today.

A trifecta of such systems have been implemented in major geographic areas around the country:

  • Regional Greenhouse Gas Initiative (RGGI) (Northeast)

  • Midwestern Greenhouse Gas Reduction Accord

  • Wester Regional Climate Action Initiative.

What's more, RGGI has already held two carbon auctions, selling more than 44 million carbon credits and generating more than $145 million in revenue.

Those three schemes are set-up as closed-loop organizations with many members—some generating carbon credits and some buying them.

Take, for example, an owner of wind farms and an owner of coal-fired power plants. Both can be members of the cap-and-trade system, but the former is producing carbon credits via offset projects while the latter is buying those credits as market price.

Utilities' new burden is cleantech's new blessing.

The entire process has absolutely nothing to do with you... until you get your electric bill.

You see, with a cap-and-trade system, carbon emissions become a costly liability. Utilities dependent on coal still need to buy the raw material and will incur other typical fixed and variable costs. Now, buying millions of dollars of carbon credits will be added to their list of costs.

Eventually, some of those increased costs are going to be passed on to customers.

But play it right, and you can more than offset rising utility costs by investing in the companies that will benefit from cap-and-trade legislation.

Here's how.

Profiting from Cap-and-Trade

Even though carbon trading exists to some extent right now, it's largely on a volunteer basis, so the broad market impact is not that great.

When a national system is established, however, it will alter the entire energy market, and create the wealth-building opportunity of a lifetime.

Now that we've elected a democratic president as well as a democratic-led Congress, a national cap-and-trade system is inevitable.

Henry Waxman, the new chairman of the House Energy and Commerce Committee, has promised such legislation by Memorial Day.

Right now, carbon credits go for about $2.05 on the Chicago Climate Exchange. A nationwide cap-and-trade system would send those prices closer to $20.

That means carbon offset generators, which are mainly cleantech companies, are in for a windfall. And you can be too.

With all major utilities about to head to carbon exchanges to buy their mandated allowances, carbon credits will be in extremely high demand. And a good portion of the revenue generated from their sale will be pumped into new cleantech projects to generate more credits.

Solar parks, wind farms, landfill gas capture... anything that prevents greenhouse gases from entering the atmosphere is on the menu.

In effect, a cap-and-trade mandate implies a massive surge in renewable energy and efficiency.

Not to mention the growth in business for carbon regulators, brokers, and exchanges.

It's a brand new, untapped market. And you can get in on the ground floor.

The intrinsic value added to cleantech companies because of cap-and-trade will be unprecedented. So will investor profits.

Utilities are already preparing, having spent millions on carbon credits the past few months in a test-run of the real thing. They know the major impact carbon liability will have on their bottom line.

Make sure you turn their misfortune into your personal gain.

Stay up-to-date on relevant policy news, and start loading up on cleantech stocks.

I'll be here to help you do both.

Call it like you see it,

nick hodge


PS. Cap-and-trade will incite the next major cleantech profit cycle. But the massive stimulus being debated by Congress is also spurring nice gains. It seems this administration has a penchant for assisting the cleantech industry and related infrastructure. You can turn their government support into personal profits. All the details are in this report.


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