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 February 06, 2009
Cap and Trade: It Doesn't Matter What You Think

 

Fresh off the World Money Show in Orlando, where Jeff Siegel and I gave a series of talks on the emerging renewable energy market, I have an abundance of stories to share.

One, in particular, deserves immediate attention, as its implications are microcosmic in multiple ways.

Cap and Trade: It Doesn't Matter What You Think

Think cap and trade is a scam? So what!

When it comes to profiting from cap and trade and other financial mechanisms to cope with climate change, what you think really doesn't matter.

It's happening. It's big. And it's profitable.

Deal with it.

But some people just can't accept it. They want to call Al Gore names, decry it as 'far left' policy, or—what I think happens most—simply are against cap and trade because they don't understand it.

I suspect that was the case with an elderly gentlemen in attendance for my talk entitled, The Financial Implications of Climate Change.

After stating repeatedly in my presentation that an individual's opinion of climate change science and the mechanisms being developed to cope with it have absolutely no relevance when it comes to investing, this guy was intent on arguing about it.

When Q&A time came, he was the first to raise his hand, saying, "I'm a farmer. I practice no till farming and was told I could get $5 an acre for my practices. I did the paperwork and haven't received a dime." (paraphrased from memory)

My reply: "So, what's your question?" I went on to explain that each case is different—maybe his credits hadn't been verified yet, maybe they hadn't been monetized. I told him these things work on a case-by-case basis and he should contact whoever it was he originally worked with on the project to see what the hold-up was.

This was his reply, as he rose from his seat in the crowd and threw his arms up: "Al Gore is the one full of hot air. I'm outta here on that." He then marched out in defiance.

How quintessentially stereotypical and unoriginal.

Hey guy, if you hate money, why don't you just say so?

Look, it doesn't matter if 'the science is still out' or you don't believe in global warming or you think related investment is a bubble.

Fact is, there's money to be made here. Shouldn't that be the primary point?

I'm not here to tell you to reduce your carbon footprint or preach about disappearing ice caps. I just want to help you make money from the recovery devices. And sure, a little less pollution wouldn't hurt anyone. (Not even the GDP, which could take a 1% hit if cap and trade is enacted, but a 20% hit if nothing is done.)

This guy—and many, many others—need to begin trading hostile contention for heavy-hitting profits.

Cap and Trade: Even Kenya Gets It

While the naysayers here in The States are busy watching Fox News and spewing vitriol on online message boards, even Kenya is pushing forward with progressive cap and trade policy.

According to a recent Reuters article, "Kenya plans to review its environmental strategy to allow companies to trade carbon credits."

The article continued: "A few Kenyan companies like sugar miller Mumias and electricity producer Kengen are in the process of initiating such projects."

Even second-world counties are savvy enough to act on massive profit potential when they see it.

And why shouldn't they? Global carbon trading momentum is growing monumentally. Only a fool would waste time denouncing it rather than seizing easy profits.

Just look at these headlines from the past week or so:

  • Indonesia aims to wrap up forest-carbon rules

  • Japan expects uptrend in UN carbon offset prices -survey

  • Push for climate deal as Obama lifts hopes

  • Norway plans $750 mln carbon technology centre

  • BP's Hayward says world needs a carbon price

The global corporate and political establishment has given its blessing to this market. The Goliaths of the world are behind it. Naysayers are the new Davids of the world.

And, as I've noted before, David only beats Goliath in fiction.

Even U.S. utilities have been flocking to carbon exchanges to purchase carbon credits in anticipation of a domestic cap and trade policy.

Their participation, coupled with the recent international surge in carbon trading, helped propel the global carbon market to 84% growth last year, with $118 billion worth of carbon credits changing hands.

This year, the market is estimated at $150 billion; and that's without a formal policy here in the states. When the U.S. formally commits, the global market could climb to $1 trillion, according to market analysis firm New Energy Finance.

And join we will.

A new president, a democratic-led Congress, and Rep. Henry Waxman as the new chairman of the House Energy and Commerce committee ensure it.

Waxman has said he could have a cap and trade bill on the floor as soon as Memorial Day.

Even the new economic stimulus, about to be passed by the Senate, has carbon control measure embedded by way of renewable energy and efficiency improvements.

The time for abstention is over, no matter your personal opinion on climate change.

I'll be covering ways to profit as legislation is introduced. In the meantime, you should be profiting from the current bill working its way through Congress.

The only thing that can emerge from continued cap and trade opposition is further division and bickering. Why not forgo all that and skip right to the easy profits?

By Nick Hodge
Energy & Capital