A $5 Trillion Market Predicted for Carbon
A Little-Known Company with Big Potential
Each January, I put a lot of thought into making resolutions, mainly because I want to fulfill them. Typically, I'm so busy over the holidays that I don't make my resolution on New Year's Day, but a week or so later, after I've had some time to think about it.
Settling on this year's resolution hasn't been hard though. It's simple: Lose the 10 pounds I gained when my wife was pregnant with our first child over two years ago and the few more I padded on top last year while waiting for our second child.
And let me take a chance here to give an unsolicited endorsement to Lose It!, a free application for the iPhone loaded with enough calorie information to make me think twice about snatching animal crackers from my eldest daughter's plate.)
Still, with all the thought I put into them, I'm still like most people in that I'm good at some resolutions (13 years ago I ended my pack-a-day cigarette habit for good) and not so good at others (I resolved to lose this weight last year).
Anyway, resolutions get me thinking broadly about all sorts of topics, including alternative energy. What if we all resolved to go cold turkey on fossil fuels to save the planet from the global warming and free ourselves from oil-driven political entanglements? What would the energy system look like?
Stanford University's Mark Z. Jacobson and University of California's Mark Delucchi wondered the same thing and detailed what our energy supply would look like in 2030 in a recent issue of Scientific American.
One of their findings is that there is no question there is enough wind, water and solar potential to more than meet global needs for energy. Solar itself could produce 30 times the world's needs, wind and water at least five times world needs each. The pair figure that the world will need 3.8 million wind turbines that collectively would cover less than the land area of Manhattan with room for pasture between the turbines, 90,000 sizeable solar farms covering a lot more area, up to 1% of Earth's land mass, and a significant number of geothermal and tidal systems.
What struck me as most interesting is the dynamic of shifting to alternative energies and the inherent way that actually lowers demand.
Here's an example: As I detailed in a new Special Report for Cabot Green Investor about the car of the future and the stocks that should benefit, over 90% of the energy that goes into our cars in the form of gasoline is wasted in some form or another. Much of it is because of the nature of combustion, which sends 80% of its energy out in the form of heat that is useless for running the car.
Electric cars are the opposite in that they are much more efficient, using 80% of the energy for moving the car and wasting just 20%. That ultimately means less input (equivalent energy amounts of gasoline and electricity) is needed to get the same output (moving the car).
Or consider water: In California, 20% of the energy created in the state is used to move water from one place to another. Some of that can't be eliminated of course, since people need drinking water, but a lot of the energy expended would disappear under an alternative energy scenario.
The typical 500-megawatt coal fired electrical plant needs 2.2 billion gallons of water a year to create steam for its turbines. From the Rockies westward, some 130 billion gallons of water annually are channeled to coal plants. Getting rid of those plants immediately lowers the overall need for as much energy without cutting end-use levels.
Overall, in Jacobson and Delucchi's view, a Green energy world in 2030 would only need two-thirds of the energy that the world currently uses with its reliance on fossil fuels to power the same things. Interesting stuff.
But as December's failure in Copenhagen shows, there won't be a comprehensive agreement on a Green energy world just yet. But that doesn't mean the push to reduce greenhouse gases and shift to alternative energies is over.
For one, the U.S. is proposing its own carbon cap-and-trade market, in which carbon emissions would be capped and credits traded, allowing dirty emitters to continue to emit while those who shift to Green energies would gain credits to sell. Over time, the caps would lower.
Now I know there is plenty of skepticism around about federal programs, but I've had the occasion in recent months to discuss the idea with a number of investment bankers and executives and there is a lot of enthusiasm for cap-and-trade.
Why? Well, there's the natural tendency of Wall Streeters to like anything they can trade, of course. But the main reason is cap-and-trade works.
Here in the U.S., the market has been used to great success in pursuing compliance with the Clean Air Act. Quite simply, the government capped acid rain-producing emissions and put a monitor on every major smokestack to measure compliance and let companies trade the right to emit up to the cap.
In 1990, national nitrous oxide emissions amounted to 1.924 million tons. By 2008, the trading mechanism had brought that down to 481,000 tons, below the emissions cap set by the Environmental Protection Agency.
As one environmental broker said, after creating the parameters, the government "just stood back and they let the market work." And it's the model the government wants to use for carbon.
How big will the carbon market be? Well, European Union and Kyoto treaty-related carbon trading volume ballooned 68% in 2009, attaining a market value of $136 billion. Just six years ago, carbon trading was a $100 million market. Estimates of how big a carbon market would be if it included the U.S. run from reaching $1 trillion to $5 trillion market value within 10 years.
The bad news, as individual investors, is that there is almost no chance we'll be allowed to dabble in carbon credits and environmental futures directly ourselves. And I think that's probably for the best, speaking as someone who has witnessed how quickly futures can wipe out fortunes as a markets reporter for Dow Jones many years ago.
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The good news is that the push to carbon trading, the promise of the U.S. to reduce emissions 17% from 2005 levels by 2020, the promise of China to reduce its "carbon intensity" by 45% by 2020, and the continuing program by Europe to slash overall emissions are buoying a whole swath of stocks.
As editor of Cabot Green Investor, I've already seen many of these rally sharply from the market bottom of the market hit last spring.
Many of the stocks we like best we only tell subscribers about, but I will tell you about one: Maxwell Technologies (MXWL), a company we first detailed to subscribers in March of last year when shares were at 5. They're now at 19 and I think there remains a lot of upside to the company, both in near-term trading and the long haul.
Maxwell makes ultracapacitors, which store energy somewhat like batteries, but electrostatically. Their form allows them to store more energy while remaining much lighter than equivalent batteries then discharging energy more powerfully and quickly.
Maxwell mainly sold these as power packs for cell phone towers (so companies wouldn't need to send workmen up the towers very often,) but a few years ago, the company figured its ultracaps could work in regenerative braking processes, gathering energy from breaking and then discharging it on acceleration. It's proving to be a great success.
Some 300 transit buses across the U.S. now use Maxwell ultracaps this way, powering up to 35 MPH without engaging the engine, cutting emissions by 75%--and cutting the amount of fuel needed too.
The big news now is that China is closely considering rolling out Maxwell's technology across their multi-million unit bus fleet. Right now, there are early Chinese orders to supply 850 buses with the technology, which fetches $15,000 per bus for Maxwell.
Conservative projections based on standard replacement volumes of China's massive public bus fleet and assuming only a percentage of those will be using ultracaps, the company estimates there could be orders to supply 10,000 buses a year, at $150 million annually, more than doubling Maxwell's sales.
Beyond hybrid buses, Maxwell is also selling its ultracaps as storage mechanisms for energy generated by solar panels and wind turbines. A just-announced push into selling micro-sized ultracaps as back-up power systems for computers and handheld devices could be another breakthrough in a market hungry for lighter and more powerful solutions.
After consolidating during the last quarter of 2009, shares are again starting to show signs that buyers are in control, making now a good time to consider building a position.
All the best,
For Cabot Wealth Advisory
Editor's Note: Forget the Big Three; the 10 high-potential companies in Brendan Coffey's latest Special Report for Cabot Green Investor are re-inventing the automobile. By 2050, the number of cars on the planet will increase by 250% and most of those autos will be far more efficient than the cars we drive now. Cabot has just published a new Special Report, "Investing in the Car of the Future: A Bumper-to-Bumper Look at the Technologies and Companies that will Re-Invent the Automobile." If you want to invest in--and profit from--the companies and technologies that will make the car of the future a reality, you need to read this report. Click below to get it now!