Clean Energy Helps End Greenhouse Gas Emissions

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Alternative Energy

U.S. carbon dioxide emissions just hit a 25-year low.

It’s true.

A big decrease in coal burning coupled with mild weather resulted in CO2 emissions of just 2,530 million metric tons for January to June of 2016. It’s the lowest level since 1991. That compares to 2,670 million tons in the same period last year.

It’s an ironic twist of fate that warm weather from global warming may be contributing to lower CO2 emissions. In the first half of this year, the U.S. chalked up the fewest heating degree days since 1949, when the EIA began keeping records.

Long-term natural gas and renewables investors stand to benefit, too. Those sources are largely replacing coal in power generation.

And coal is one of the biggest sources of CO2 emissions.

Year over year, coal use dropped by 18% in the first six months of 2016. Coal exports, which had been one bright spot for the rapidly declining sector, fell 40% in July 2016.

At just 3.3 million short tons, July’s exports were the lowest since February 2007. And for the first seven months of this year, coal exports dropped 32% compared to the same period last year.

Natural gas is replacing coal as the go-to fuel for new generation. Last year, coal and natural gas each contributed about 33% of power.

This year, utility-scale generation from natural gas will be 35%, compared to 30% for coal. One of the big spoilers has been the rapid adoption of renewable energy.

renewable-energy-consumption

Solar power generation started from a low base of 10 gigawatts in 2014. However, by the end of next year, solar should hit 27 GW.

That’s an average annual growth rate of 39%. It also happens to be the highest rate among all sources of power generation, including other renewables.

Meeting Our Greenhouse Gas Emissions Targets

 Clearly, renewables present a real opportunity to reduce our CO2 emissions. They also present a real opportunity for investors.

And the government is helping that cause…

In 2009, President Obama attended the world climate talks in Copenhagen, Denmark. He pledged that by 2020, the U.S. would reduce its greenhouse gas (GHG) emissions by 17% from 2005 levels.

He made those promises in the hopes that Congress would pass climate legislation in its 2010-2011 sessions. True to form, Congress did nothing.

Scientists and climatologists around the world scolded the U.S. for its inaction. After all, the U.S. is still one of the world’s biggest GHG emitters.

That’s the bad news. The good news is the U.S. is on its way to meeting Obama’s promise anyway.

Many of our recent GHG emissions regulations for cars and light trucks are partly responsible for the drop in GHG. But an even bigger contributor to GHG reduction is the EPA’s emissions regulations on power plants and industrial companies.

The pie chart below shows the contribution of GHGs by economic sector. It’s clear that by hitting power generation, transportation and industry, the EPA is going after the low-hanging fruit.

greenhouse-gas-sector

By 2020, the EPA’s regulations will achieve reductions of 10.5% from 2005 levels. Another 3.3% of reductions will come from improvements in energy efficiency and the increased use of natural gas.

When utilities burn natural gas, they generate half as much CO2 as they do when they burn coal. Right now, natural gas has never been more plentiful here.

But new federal regulations on GHG emissions aren’t the only contributor to lower levels. There are plenty of state and regional regulations, too.

They’ll be responsible for another 2.5% reduction in GHGs by 2020. There are 29 states with their own renewable energy standards.

In addition, 24 have energy efficiency programs in place. More are likely to follow with their own standards.

The lack of comprehensive federal climate change rules frustrates many state legislators. So they are taking things into their own hands.

And it’s making a difference.

Plenty of Angles for Investors 

Investors interested in profiting from America’s GHG reductions have plenty of options. There are a number of alternative energy exchange-traded funds.

The PowerShares WilderHill Progressive Energy Portfolio ETF (NYSE: PUW) has an impressive year-to-date return of 24.15%.

However, its total five-year return is only 13.57%. A better choice might be the First Trust ISE Global Wind Energy Index Fund (NYSE: FAN). Its year-to-date return is slightly lower, at 17.11%, but its five-year return is an impressive 67.97%.

Investors also have the option of investing in individual “green” equities. But I’ll leave that topic for another day.

The good news here – for investors and Americans in general – is we are reducing our GHG emissions. Why the press and media aren’t on this story is a bit baffling to me.

Perhaps they just can’t see the forest for the trees.

Good investing,

Dave