President Bush's recent State of the Union speech placed a great deal of attention on ethanol, but there was another announcement this week that warrants the attention of investors interested in alternative-energy stocks, or "cleantech."
This past Monday, a diverse group of U.S.-based businesses, including the likes of General Electric (NYSE:GE), Alcoa (NYSE:AA), BP America (NYSE:BP), Duke Energy (NYSE:DUK), DuPont (NYSE:DD), Lehman Brothers (NYSE:LEH) and PG&E (NYSE:PCG), called upon the federal government "to quickly enact strong legislation to achieve significant reductions of greenhouse gas emissions."
My, how the times have changed. It is hard to imagine these corporations -- which call themselves the U.S. Climate Action Partnership -- making a similar plea just a few years ago, when the political climate in Washington, D.C., was, shall we say, different.
So have the CEOs of these corporations really come to believe that climate change is real? I am willing to give them the benefit of the doubt, but it is a mistake to think that they are calling for legislation simply because they now want to be good environmental stewards. They are doing it because they know they can make money.
Here's how. On the top of the group's legislative agenda is a cap-and-trade program. Under such a program, companies are rewarded for lowering carbon emissions and are even able to trade (for real money) "surplus" carbon reductions to those companies that are unable to reduce their carbon emissions.
With the Democrats now in control of Congress, and the CEOs of companies with a total market capitalization of more than $750 billion pushing for the passage of a cap-and-trade program, it is a good bet that some version will pass.
When it does, it stands to benefit any company that is using or selling technologies that limit carbon dioxide emissions. To this end, DuPont and BP America, as leaders in biofuels, will stand to gain. General Electric, as a manufacturer of wind turbines and solar equipment, will also benefit, as will companies such as Duke Energy and PG&E that have made big bets on wind, hydro, and nuclear power.
Tying this complex cap-and-trade program together will require a company with the financial and technical skills of a Lehman Brothers. Of course, for this service, it will be only too happy to take a healthy slice of each transaction.
The bottom line is that Washington will be getting involved in the energy industry in a big way in the coming years. Investors who want to profit will need to understand which companies will win and which will lose under various regulatory schemes.
My bet is that among the first winners will be the "10 Jolly Green Giants" who make up the Climate Action Partnership, because they understand that a different kind of green will also be produced from a cap-and-trade program.
For more on the companies mentioned in this article, check out:
Interested in cleantech, biotech or nanotech? Consider a subscription to the Motley Fool Rule Breakers newsletter. You can sign up for a free 30-day trial here.
Fool contributor Jack Uldrich lives in the land of the real Jolly Green Giant (Minnesota) and owns stock in GE. Duke Energy is an Income Investor pick. The Fool's disclosure policy urges you to visit the Mary Tyler Moore statue next time you're in Minneapolis.
