Powershares Wilderhill

The new world of carbon will have a significant impact on the outlook for the utilities sector. Electric utilities will face significant new challenges as they adapt to the green initiatives of the new administration and Congress. About 56% of the electricity produced in the United States comes from coal, contributes significantly to carbon emissions. Natural gas generates about 27% of electricity, wind power generates about 1% and solar energy generates about 0.1% of the electricity consumed in the United States. The cost to reduce carbon emissions will have a significant impact on the economics of the public services and their supporting industries.

Policy Shift

The passage of a market economy to one that is politically controlled will have long term consequences for the U.S. economy and industries. The 110th Congress of carbon produced six bills cap and trade that could not pass through all the politics in the capital. Now that the 111th Congress is in session, the change in the composition of U.S. policy in place is likely to change the operation of carbon-producing industries, particularly electric utilities.

Obama continued to support his campaign pledge to take measures to reduce carbon emissions. In a change of management committee of the House, Representative John Dingell (D. Michigan) was replaced by Representative Henry Waxman (D. CA) as chairman of the House Energy and Commerce Committee . Representative of Michigan, Dingall was a longtime ally of the car and he favors a slower approach to reducing carbon emissions. His most recent bill required total carbon emissions to 6% below 2005 levels by 2020.

Representative Waxman favors a more aggressive approach to the reduction of 14% compared to 2005 levels by 2020. Now he is the chairman of the committee that will produce the bill in the House, it is very likely that the bill will be put before the House will be much closer to what he favors. Representatives of the coal producing states are not likely to support measures that are more aggressive. However, Representative Waxman has the support of other powerful members of the House, including Speaker of the House Nancy Pelosi (D. California). Speaker Pelosi is known to keep his place in line and seeks to leverage its power restored.

The Senate has a slightly different situation where the Democrats have increased their majority. However, Republicans still hold at least 41 seats, enough to block the initiatives of the Democratic majority. Of course, some Republicans might vote with the Democrats, if the parties do not always work as expected. A bill the Senate is likely to be targets of carbon as House version, the creation of a struggle than we will become the final version. Again, senators from states that have a major impact on the economy of their country will influence the result.

The changing of the guard in Washington is establishing a new political environment which will result in long-term utility industry. special interests and the intense lobbying going to try to influence the outcome. Meanwhile, investors should try to understand how to proceed in this new environment.

Impact of carbon caps on the utilities sector

Assuming that more restrictive standards for carbon becomes law, the victors in this battle are those capable of producing more power from low carbon or carbon-free sources. Consider renewable energy and nuclear power plants. The losers will be the utilities that use carbon-rich fuels for their electricity production, coal is.

Of course, wind and solar companies will continue to benefit. Powershares Clean Energy WilderHill ETF (PBW) has a broad exposure to clean energy technologies. Xcel Energy (XEL) has pledged to reach 20% of its electricity by wind. Their Windso.