Ten Insights on Carbon Policy and Its Implications
On November 27, I attended the National Renewable Energy Laboratory's (NREL) Fifth Energy Analysis Forum, hosted by NREL's Strategic Energy Analysis & Applications Center. The forum focused on carbon policy design, the implications for Renewable Energy and Energy Efficiency. As a stock analyst focused on that sector, I am extremely lucky to have NREL as a local resource: the quality and the level of the experts at NREL and the ones they bring in is probably not matched anywhere in the country, and conferences like these provide priceless insights into what these Energy Analysts are thinking.
Why should investors care what analyst think about the best form of carbon regulation, when it will be the politicians who eventually implement it? Because these are the very experts politicians will call on when designing their legislation. While interest groups will also undoubtedly have a large say in regulation, they are unlikely to come up with new ideas which help shape future regulation. The new ideas will come from the 50 or so analysts that gathered in Lakewood last Tuesday, and the regulations based on these ideas will be critical to the business plans of the companies we invest in.
This is a link to my notes. I will likely find many investment ideas there, only some of which will make it into articles. For those with the time and interest, I expect they will be a valuable resource. For the other 99% of readers, here are ten interesting, intriguing, or just plain surprising ideas that pop out for me.
INSIGHT #1: "Clean Coal" is a Solution to a Political Problem
Integrated Gasification Combined Cycle with Carbon Capture and Sequestration (IGCC w/ CCS or "Clean Coal") is popular with legislators because it is a solution to a political problem, not because the technology is ready or because analysts expect it to be the most economical solution. Nuclear power is likely to be cheaper, and it is an existing technology.
INSIGHT #2: Electricity Generation may be a Better Use of Biomass than Liquid Fuels
If the goal is to reduce net carbon emissions, burning biomass for electricity (either by cofiring in coal power plants, or in dedicated biomass generation stations) is more effective than using the same biomass to produce liquid fuels, such as cellulosic ethanol. TK note: I believe that many investors in companies developing methods to produce cellulosic ethanol are underestimating the competition for available feedstock from biomass based electricity generation.
INSIGHT #3: Electricity Generators May Get Windfall Profits
Allocation of Emission Credits is likely to create windfall profits for existing generators except in carefully designed auctions.
From Eric Smith, EPA Climate Economics Branch.