Following Tuesday’s election setback for the Democrats, President Obama’s speech on the election results probably offered more insight on Energy Policy than on any other individual area of the policy agenda. As would be expected, the President clearly accepted that any progress at all in passing new legislation will require the need for significant compromise with the new Republican Congress. Asked in the Q&A to highlight those areas where he thought that agreement could be reached, he repeatedly pointed to the area of Energy Policy. It now seems to be increasingly clear that both the President and the Democratic leadership have accepted that an all-encompassing approach to Climate Change legislation, including Cap and Trade, is no longer possible. However, the President has clearly opened the door to a pragmatic focus on what can be achieved. And there seem to be some interesting areas for potential progress.
In an article in mid-October, ‘Why Clean Energy Fuels Should Benefit From a Lame Duck Congress’, I argued that the President was in the process of leaving Cap and Trade behind in order to open the door to a more achievable piece-meal approach to energy policy – and that this would particularly favor bipartisan action on the Natural Gas Act. In broad terms, the President’s latest comments clearly suggest that this seems to have been the case.
On Cap and Trade, the President had this to say in the Q&A:
Cap and Trade was just one way of skinning the cat; it was not the only way. It was a means not an end. And I’m going to be looking for other means to address this problem.
So I think when it comes to something like energy, what we’re probably going to have to do is say here are some areas where there's just too much disagreement between Democrats and Republicans, we can’t get this done right now, but let’s not wait. Let’s go ahead and start making some progress on the things that we do agree on, and we can continue to have a strong and healthy debate about those areas where we don’t.
In terms of the potential for agreement to be reached with a Republican Congress and therefore potential for progress on legislation, he pointed to three clear areas of opportunity –
- Aiding the development of the Electric Vehicle Industry
- Nuclear Power
- The Natural Gas Act
Here are the key quotes from the President’s speech on these energy-related issues. Judge for yourself:
I don’t think there’s anybody in America who thinks that we’ve got an energy policy that works the way it needs to; that thinks that we shouldn’t be working on energy independence. And that gives opportunities for Democrats and Republicans to come together and think about, whether it’s natural gas or energy efficiency or how we can build electric cars in this country, how do we move forward on that agenda.
We’ve got, I think, broad agreement that we’ve got terrific natural gas resources in this country. Are we doing everything we can to develop those? There's a lot of agreement around the need to make sure that electric cars are developed here in the United States... that we don't fall behind other countries. Are there things that we can do to encourage that? And there's already been bipartisan interest on those issues. There’s been discussion about how we can restart our nuclear industry as a means of reducing our dependence on foreign oil and reducing greenhouse gases. Is that an area where we can move forward?
Consequently, it seems reasonable to suggest that a bipartisan period of compromise may bring some success in delivering more limited, but more focused specific pieces of legislation that may make it through Congress.
Following on from my mid-October article, the focus of my attention for the moment is the Natural Gas Act, which will shortly become a live issue. Senate Majority Leader Harry Reid introduced legislation under the Natural Gas Act just before the recess on $4.5bn of incentives to aid the deployment of natural gas–fueled vehicles and refueling stations (there are also some incentives for the electric car). These measures were previously embedded in broad legislation related to the Gulf oil-spill and were unfortunately lost when the debate over that legislation became heavily divisive and partisan.
The next staging post for the Natural Gas Act comes with a key vote on the issue on November 17th. So fairly soon, we’ll get an indication of the extent to which bipartisan support is now genuinely possible on this question. However, the President now seems to be putting his weight behind this legislation. Moreover, it would represent a solid step forward that could be supported both by groups looking for progress on climate change and those concerned about America’s reliance on foreign oil from a national security perspective. Importantly, there seems to be a reasonable degree of Republican support here.As I argued in my last article, the two clearest beneficiaries from the eventual passing of the Natural Gas Act would be Clean Energy Fuels (NASDAQ:CLNE) and Westport Innovations (NASDAQ:WPRT). CLNE is of course the T. Boone Pickens-backed provider of natural gas refueling infrastructure. Meanwhile, Westport Innovations is the leading provider of natural gas engine technology for heavy trucks. Additionally, Cummins (NYSE:CMI) should also benefit as a natural gas engine player with an interest in Westport.
In this article I have omitted to discuss either the business plans or the financials of these companies. However, in my opinion, it's probably best to accept that for now both Clean Energy Fuels and Westport are largely plays on the politics, in that the forward trajectory for their related stock prices is probably binary and dependent on whether or not the Natural Gas Act makes its way onto the statute books. If it fails both companies face a long journey ahead. If it passes, it is probably fair to say that they will both be handed good franchises in what will become a rapidly developing natural gas trucking business. They will not be the only beneficiaries but they will be the big ones.
Disclosure: Long CLNE, Long WPRT.