Monday, August 3, 2015

Climate Change, Policy Changes

The cause for climate change can be said to be vainglorious for some, but others lead its valiant charge in the name humanity. President Obama has made it a noble cause, one that he has promised will mark his legacy. As a result, his administration has finally realized its efforts to assist in the conquest of evil carbon emissions. In order to do that, Obama will push new regulations in the energy sector, looking for a major reduction in carbon-dioxide based pollution, a push to invest in new markets for renewable resources, and a place in climate control history. Although introducing significant regulations on the energy industry may not be historic, it will surely change how and what will power American homes. Currently, the United States uses coal to support 18% of its energy consumption, and in electricity generation, coal is the source of 368.5 million megawatt hours. This high carbon fuel source supported as much as 50% of electricity generation in 2000 but has been on the decline as natural gas production competes to become the majority source. The Energy Information Administration reported in its Annual Energy Outlook for 2015 that natural gas is now responsible for about 27% of electricity generation, and in the wake of the regulations, is expected to rise. While what is being called "the war on coal" looks to give credits for switching away from pollution heavy coal burning, Obama's new regulations will seek to push the issue of renewable resources. In fact, there are plans to boost investment capital in these sectors so that renewable resources can account for up to 30% of power by 2030, up from 13% this past year. But that is only considering the conversion of traditional coal plants to solar, wind, and nuclear power options that replace the condemned fuel source. In reality, predictions up to five years in advanced must consider the considerable growth of domestic consumptions which the EIA projects will grow at rates just above 3% given current economic conditions. Energy and utility companies will be looking not just to rid themselves of coal plants that will dock them of emissions credits and benefits but installing a renewable energy approach in their strategy. This will come at the expense of selling depreciated industrial capital as coal plants will not be easy to liquidate because of their undesirability. With the introduction of these new regulations, investors should be reevaluating their energy investments especially looking at stocks that have large coal mining and burning operations. These companies will be looking for a way to convert dirty energy to clean energy with substantial investments in research and development along with risks on new natural gas, solar, wind, and nuclear solutions. Consolidated utilities companies with arms in every energy source will have an easy time transitioning to new government standards, but should experience relatively high costs that will come with reinvestment. Entities with high stakes in natural gas and its processing will experience a jump in demand in the coming years as coal fades out and is replaced by the lower emissions fuel. Perhaps mergers and acquisitions could be in the future as the capital that coal companies can provide might be better matched with infrastructure already scheduled to expand natural gas production. As for companies with major renewable resource investments, their stocks will steadily increase in value as 2018 enforcement looms in the next four years. For investors, identifying a cheap investment now can be an efficient way to cash in on the demand for cleaner energy. The same could be said about companies associated with natural gas, but being overshadowed by crude oil production and processing makes the blue chip harder to identify. For crude oil prices and companies specifically, demand and consumption will depend on oil prices over the next years as well as advancements in motor vehicle fueling efficiency and alternatives. If oil prices remain low, the solution to petroleum addiction will be hard to solve as demand increases indefinitely. If prices stabilize to higher levels, the energy economy might have an incentive to nip the pump before it becomes too expensive. Nevertheless, the oil industry does not have to worry about the initial unveiling of regulations for carbon emissions as will continue to be needed for fueling America and the world's motor vehicles, but discussion of energy efficiency, climate change, and the impending doom of peak oil will fuel enough sentiment to inspire further policy changes at the state and national level.

Data used for this article:
Annual Energy Outlook 2015

WSJ Article

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