By Brendan Coffey
A $5 trillion market is predicted for carbon, but as December’s failure in Copenhagen shows, there won’t be a comprehensive agreement on a Green energy world just yet. But that doesn’t mean the push to reduce greenhouse gases and shift to alternative energies is over.
For one, the U.S. is proposing its own carbon cap-and-trade market, in which carbon emissions would be capped and credits traded, allowing dirty emitters to continue to emit while those who shift to Green energies would gain credits to sell. Over time, the caps would lower.
Now I know there is plenty of skepticism around about federal programs, but I’ve had the occasion in recent months to discuss the idea with a number of investment bankers and executives and there is a lot of enthusiasm for cap-and-trade.
Why? Well, there’s the natural tendency of Wall Streeters to like anything they can trade, of course. But the main reason is cap-and-trade works.
Here in the U.S., the market has been used to great success in pursuing compliance with the Clean Air Act. Quite simply, the government capped acid rain-producing emissions and put a monitor on every major smokestack to measure compliance and let companies trade the right to emit up to the cap.
In 1990, national nitrous oxide emissions amounted to 1.924 million tons. By 2008, the trading mechanism had brought that down to 481,000 tons, below the emissions cap set by the Environmental Protection Agency.
As one environmental broker said, after creating the parameters, the government “just stood back and they let the market work.” And it’s the model the government wants to use for carbon.
How big will the carbon market be? Well, European Union and Kyoto treaty-related carbon trading volume ballooned 68% in 2009, attaining a market value of $136 billion. Just six years ago, carbon trading was a $100 million market. Estimates of how big a carbon market would be if it included the U.S. run from reaching $1 trillion to $5 trillion market value within 10 years.
The bad news, as individual investors, is that there is almost no chance we’ll be allowed to dabble in carbon credits and environmental futures directly ourselves. And I think that’s probably for the best, speaking as someone who has witnessed how quickly futures can wipe out fortunes as a markets reporter for Dow Jones many years ago.
The good news is that the push to carbon trading, the promise of the U.S. to reduce emissions 17% from 2005 levels by 2020, the promise of China to reduce its “carbon intensity” by 45% by 2020, and the continuing program by Europe to slash overall emissions are buoying a whole swath of stocks.
A Little-Known Company with Big Potential
I’ve already seen many of these rally sharply from the market bottom of the market hit last spring.
I will tell you about one: Maxwell Technologies (MXWL). They’re now at 19 and I think there remains a lot of upside to the company, both in near-term trading and the long haul.
Maxwell makes ultracapacitors, which store energy somewhat like batteries, but electrostatically. Their form allows them to store more energy while remaining much lighter than equivalent batteries, and then discharge energy more powerfully and quickly.
Maxwell mainly sold these as power packs for cell phone towers (so companies wouldn’t need to send workmen up the towers very often), but a few years ago, the company figured its ultracaps could work in regenerative braking processes, gathering energy from breaking and then discharging it on acceleration. It’s proving to be a great success.
Some 300 transit buses across the U.S. now use Maxwell ultracaps this way, powering up to 35 MPH without engaging the engine, cutting emissions by 75%–and cutting the amount of fuel needed too.
The big news now is that China is closely considering rolling out Maxwell’s technology across their multi-million unit bus fleet. Right now, there are early Chinese orders to supply 850 buses with the technology, which fetches $15,000 per bus for Maxwell.
Conservative projections based on standard replacement volumes of China’s massive public bus fleet and assuming only a percentage of those will be using ultracaps, the company estimates there could be orders to supply 10,000 buses a year, at $150 million annually, more than doubling Maxwell’s sales.
Beyond hybrid buses, Maxwell is also selling its ultracaps as storage mechanisms for energy generated by solar panels and wind turbines. A just-announced push into selling micro-sized ultracaps as back-up power systems for computers and handheld devices could be another breakthrough in a market hungry for lighter and more powerful solutions.
After consolidating during the last quarter of 2009, shares are again starting to show signs that buyers are in control, making now a good time to consider building a position.