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The Cost of Reducing Emissions

Cutting Emissions, Increasing Profits

Written by Nick Hodge
Posted December 3, 2007 at 7:26PM

According to a report last week by The Conference Board and McKinsey & Company, US citizens would not have to make dramatic sacrifices to reduce greenhouse gas (GHG) emissions by 2030.

The study's mid-range case found that the US could cut its emissions by 3 billion metric tons by 2030 at an average cost of $50 billion annually, or $1.1 trillion total. And while those numbers may sound daunting at first, $1.1 trillion would only represent about 1.5% of the $77 trillion expected to be invested in the US economy over the same period.

In fact, according to the study, the US could make 80% of the reductions using technologies that have already been developed and tested, either in the US or elsewhere.

The most economic way to slash emissions, as I've said before, is through efficiency upgrades in appliances and buildings, including the increased construction of green buildings. Simply improving heating, ventilation and air conditioning (HVAC) and insulation techniques could save upwards of 870 million metric tons of emissions.

After efficiency, the next path of least resistance falls in the lap of the transportation industry, which could save up to 660 million metric tons by increasing fuel economy and using more biofuels.

Beyond that, power plants could save up to 1.57 billion metric tons through carbon capture and sequestration, though this would be the costliest option. According to Ken Ostrowski, a McKinsey director, the power sector may have to invest some 90% of its total market cap to curb emissions.

But--and this is a big but--those costs would eventually be offset by switching to fuels that are free after an initial investment, like wind, solar and geothermal.

Ostrowski concluded, "The winners will be the folks that don't resist change, but look at ways to apply innovation and ingenuity to capitalize on the migration toward a lower carbon economy."

Count Us Among the Winners

Just three weeks ago, I told you about utility company PPL Corporation (NYSE: PPL) and its efforts to go green by investing in renewable energy.

I chronicled their recent construction of a new headquarters building certified gold by the Leadership in Energy and Environmental Design (LEED) rating system of the US Green Building Council (USGBC). And I also told you about PPL Renewable Energy, an offshoot of PPL, and its development of a 4.8 MW power plant in Moretown, VT, using landfill gas as fuel.

At the time, PPL stock was trading at $48.48 per share.

Last week, PPL announced plans to build another 6.4 MW landfill gas plant in Shippensburg, PA. The plant, to be completed by December 2008, would save about 39,000 tons of CO2 from entering the atmosphere annually.

Since I wrote about the company on November 12, the price has shot up about 6%. Take a look at their chart from just the last ten days, compared to the utility industry as a whole.

chart of utility company PPL Corporation (NYSE: PPL)

You can see how investing in renewable energy is paying off in real time.

And, of course, this isn't a scenario being played out only in the US. This week in Bali, Indonesia, representatives from 190 countries are trying to establish a framework for a successor to the Kyoto Protocol. A key challenge to success, according to Indonesia's Environment Minister and host of the conference Rachmat Witoelar, is enticing businesses to invest in GHG cuts and other solutions to climate change.

A United Nation's report published in October concluded that $200 billion needs to be invested annually by 2030, half of that in developing countries, to help curb the effects of climate change.

That UN report also concluded that 86% of the investment needed to help the world cut emissions and cope with global warming would have to come from the private sector.

Other news to come out of Bali this week includes the immediate ratification of Kyoto by newly-elected Australian Prime Minister Kevin Rudd. Soon after taking the oath of office, he signed the documents necessary to join the rest of the developed world--except the US--in combating climate change.

This, too, is something I told you would happen. And, as a result, CO2 Group Limited (ASX: COZ), a company I wrote about here one week ago, is up another 6%, capping a 121% gain in one month's time.

carbon reduction company CO2 Group Limited (ASX: COZ)
But even beyond what's going on right now, this market looks brighter. Congress is currently negotiating a landmark energy bill that could shape the domestic energy sector for years to come.

An agreement to raise efficiency standards to an average 35 mpg for cars, vans and light trucks by 2020 has already been reached. At issue now is whether or not the bill would include contested provisions like a national renewable portfolio standard (RPS) requiring 15% of electricity to been generated from renewable sources by 2020. Another issue is the passage of a $16 billion tax package that would take money away from Big Oil to fund renewable energy projects, including solar.

We should have a clearer understanding of how all this is going to unfold as the week progresses.

One thing, however, remains clear. Change is happening all around us. Even with the lack of federal support, half of the nation's population now lives in states that are voluntarily reducing their emissions via governors' agreements.

Plus, clean technology is now the biggest recipient of venture capital in the US, with over
$4 billion invested last year. And this year, $3.8 billion was invested just in the first three financial quarters.

And the Green Chip portfolio is capitalizing at every turn. The portfolio is up over 69%, and is growing every day.

Make sure not to miss another winning recommendation in one of the market's hottest sectors. Click here to become a member today.

Until next time,

nick hodge



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