Covanta (NYSE:CVA) is an odd business. It's a trash hauler, like Waste Management (NYSE:WM) and Republic Services Group (NYSE:RSG). But it's also a power company because it uses trash as a fuel for making electricity. What makes Covanta even more interesting is that it just won an Environmental Protection Agency (EPA) clean air technology award for burning garbage.

Garbage in, power out
The modern world makes a huge amount of rubbish. It's why trash haulers like $20 billion market cap Waste Management and $12.5 billion market cap Republic Services Group have been able to grow into such giants. And there doesn't appear to be an end in sight. For example, Republic Services Group expects to use, "'tuck-in' acquisitions in existing markets" to maintain "a steady pace of investment of approximately $100 million annually."

(Source: Ashley Felton, via Wikimedia Commons)

In other words, there's plenty of room for continued growth. However, picking up trash isn't enough anymore. That's why both Waste Management and Republic Services have been increasingly focused on recycling and more. One of the "more" items is using their trash operations to produce energy.

Republic Industries has around 70 landfill to gas and other renewable energy projects. Waste Management has roughly twice that number of landfill to gas projects. It also has 17 power plants that use trash as a fuel source. That's Covanta's specialty. The company has 45 "energy from waste" plants. Most are in the United States, but it has a global footprint with a handful of plants in Canada, Europe, and Asia.

What do you do with it all?
Waste Management just wrote down the value of its investment in its energy from waste business because it believes that "projected long-term energy prices and disposal volumes into the plants will not dramatically improve." The $1.85 a share writedown pushed fourth quarter earnings into the red. That casts a cloud over Covanta, which has seen earnings decline in each of the last three years and posted a GAAP loss of a nickle a share in 2013.

However, longer term, Waste Management and Covanta's efforts to burn trash to make power answers the tough question of what to do with an ever increasing pile of garbage. In fact, Covanta just won an EPA award for the installation of a low-nitrogen oxide system it created at a facility it operates in Montgomery County, Maryland. The emissions reduction is the equivalent of removing "roughly 50,000 passenger cars from the road."

(Source: GTD Aquitaine, via Wikimedia Commons)

And, according to Covanta, "[processing garbage] at Energy-from-Waste facilities for energy generation (steam or electricity) offsets, on average, one ton of greenhouse gas (GHG) emissions for every ton of waste processed." Although Waste Management and Republic services are right to use their existing landfills to produce energy, Covanta's model is, pardon the pun, cleaner.

Energy markets are the key
Waste Management, Republic Services, and Covanta, however, are all public companies. They need to make money and invest in profitable ventures. Waste Management's outlook for its waste to energy business and Covanta's recent dip into the red aren't good signs, even if the technology involved is cutting edge and helps to solve a long-term problem.

Waste Management, which is far larger and more diversified, is a punt on the power play. You'll get exposure without taking a huge risk. Covanta is like jumping in with both feet. The big determinant of success will be power prices, which have recently been low.

While Waste Management obviously isn't expecting a turnaround, Covanta is calling for its "adjusted" earnings (a non-GAAP number) to be roughly flat to higher in 2014. And management was confident enough in the future to increase the quarterly dividend to $0.18 a share in the first quarter from $0.165 a share. That marks the fourth consecutive year of dividend hikes. If you're an aggressive investor looking for an environmental play that isn't being hyped up, Covanta is well worth a deep dive.