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How Cap-and-Trade Will Affect Your Portfolio

America is embroiled in a dynamic, robust, and often boisterous health-care debate. This preoccupation has left other legislation on the Congressional back burner, including one bill that could have a huge effect on your portfolio.

Can you say cap-and-trade?
The Waxman-Markey climate-change bill passed the House of Representatives in June and is currently moving its way through the Senate. Much haggling remains, but it seems that some sort of "cap-and -trade" climate legislation will be enacted. A friend of mine who works on Capitol Hill agrees that the political will exists for some sort of carbon regulation.

A number of business leaders are lining up behind the idea as well. Berkshire Hathaway (NYSE: BRK-A  ) CEO Warren Buffett, although unhappy with the bill's current language, said it's important to ''move on carbon emissions.'' Exelon (NYSE: EXC  ) CEO John W. Rowe recently declared that "the carbon-based free lunch is over." Exelon is following Pacific Gas & Electric and PNM Resources in a recent string of high-profile departures from the U.S. Chamber of Commerce, a major business lobby, over climate policy differences.

Obviously, some companies are supporting carbon regulation because they stand to benefit financially from the new rules. But others could suffer. How do we pick the winners?

What's that Latin phrase?
Currently, 60% of the electricity generation in the U.S. comes from coal. The Waxman-Markey bill that passed the House would raise the cost of electricity generated by burning coal. Demand would therefore increase for less carbon-intensive generation sources, such as nuclear power or natural gas. John Shelk, president of the trade association Electric Power Supply Association, predicts that we will see an "increase in revenues to carbon-free power sources like nuclear." He adds that "this is exactly what is supposed to happen."

No wonder that Exelon, which has the largest nuclear holdings in the U.S., is a fan of Waxman-Markey. Other utilities with nuclear holdings, such as Duke Energy (NYSE: DUK  ) , will be smiling if the bill passes.

But beyond nuclear, other sectors are getting excited about this legislation, too.

The renewable option
Waxman-Markey will also increase demand for renewable energy, since it includes mandates for renewable electric generation. President Obama has already given renewable energy a gigantic shot in the arm during his first six months in office, and the passage of anything resembling Waxman-Markey will represent another huge push toward a green economy.

The green revolution is real, and it will be permanently solidified in a Waxman-Markey bill that has any sort of substance. How can the individual investors, the foot soldiers of this revolution, profit while the procession marches on?

Cui bono? You.
We are at the threshold of a major shift in the U.S. economic structure. Every day, companies are developing new technologies for cleaner power generation, a smarter and more integrated electric grid, and better storage and battery systems. What are some of the companies that will lead the charge?

As more electricity production comes from wind and solar, companies such as Motley Fool Rule Breakers selection First Solar (Nasdaq: FSLR  ) will see increased demand for their products and systems. First Solar has reportedly achieved grid parity with a 12.6-megawatt project in Nevada, a sign that solar technologies are becoming more cost-effective at this early stage.

Getting new clean-electricity production into the grid will mean growth for companies such as ABB (NYSE: ABB  ) that make grid components and hardware. Managing this growing and smarter electricity infrastructure will be big names such as Cisco Systems (Nasdaq: CSCO  ) and IBM, but not exclusively.

One great small-cap stock, Echelon (Nasdaq: ELON  ) , a maker of smart meters and grid-management technologies, was a runner-up in The Wall Street Journal's recent Technology Innovation Awards. Echelon's technologies and systems are already helping Oslo, Norway, reduce energy use from outdoor lighting by 62%.

Onward, clean-tech soldiers!
Now that you've started your research on the green revolution, why not let the Rule Breakers team help you continue your march toward great returns? The team of analysts has identified three leading alternative-energy picks. If you'd like to read about those ideas and receive full access to all of the team's recommendations free for 30 days, just click here.

Fool contributor Matt Hoffman owns no shares of any of the companies mentioned. ABB is a Global Gains selection. First Solar is a Rule Breakers pick. Duke Energy is an Income Investor recommendation. Berkshire is both a Stock Advisor and Inside Value selection, as well as a Fool holding. The Motley Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 16, 2009, at 3:33 PM, TexasLonghorns wrote:

    Cap and Trade...if they get this piece of garbage pushed down our throats like the health care debacle we will see this country's economy sink faster than the Titanic did.

    How about getting some infrastructure in place first, then start phasing in the carbon emission penalties. It takes upwards of ten years to get a nuclear plant built in this country because of the same "green weenies" that want cap and trade. JEEEEZZZUZZ!

    Herbert Hoover RIP! Better break your armadillo recipes out because "Hoover Hogs" are going to be the meal of choice in the next Depression these idiots are leading us into!

  • Report this Comment On October 16, 2009, at 10:29 PM, kcesp wrote:

    under my plan of a cap and trade system, electricity rates would necessarily skyrocket…Barack Obama

  • Report this Comment On October 17, 2009, at 5:49 PM, NOTvuffett wrote:

    TexasLonghorns is right.

    here is the actual video of the President Obama quote that kcesp referred to:

  • Report this Comment On October 17, 2009, at 11:41 PM, nickey2009 wrote:

    i think it is really going to be more helpful in protecting the environment and will generate clean energy options for us..

  • Report this Comment On October 18, 2009, at 1:47 AM, sabertoothtiger wrote:

    China will be moving to clean energy faster than the U.S. Look for companies like APWR and BYDDY to prosper.

  • Report this Comment On October 19, 2009, at 10:07 AM, miteycasey wrote:

    $1000./mth electric bill???

  • Report this Comment On October 20, 2009, at 1:41 AM, dgmennie wrote:

    For as long as the Earth has had an atmosphere, its weather patterns have been governed by forces that are yet to be fully identified and appreciated. And even when/if such forces are fully understood, man controls no comperable forces that can make any significant impact (for presumed good or evil) on the totality of the weather itself.

    Yes we can (and do) make terrible choices regarding such things as LOCAL environmental contamination and pollution. While these cause significant harm, they can also be remedied. But cleaning up a river or decontaminating a landfill is a far cry from the current thinking that claims man has (or can soon have) a significant impact on the continental ice layers that cover Greenland or Antartica.

    Such monumental shifts in the planet's environment CAN and DO take place (e.g., ice ages) and involve heating and cooling cycles under the influence of conditions WELL BEYOND anything even remotely related to the presence or absence of mankind.

    Somebody is on an intense EGO TRIP when it comes to climate change discussions since they are claiming to be able to modify or reverse events that will take place regardless of any and all attempted intervention or human political posturing.

    Meanwhile, with climate change mania in full play, we could easily manage to destroy or bankrupt our man-made economies and social structures -- something we DO have direct control over.

  • Report this Comment On April 12, 2010, at 9:02 AM, Renergie wrote:

    For a better understanding of cap-and-trade, visit:

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