Alternative Energy Investments

In 2005, a fast-talking Wall Street hack approached me with the “opportunity of a lifetime.”

It was a deal to get an early piece of a carbon trading firm that was going to make millions once they put a price on carbon.

I nodded respectfully, smiled and politely said, “No, thank you.”

Although I’ve made a fortune in clean energy, I’ve never been a fan of this whole carbon trading thing.

In fact when I first heard about it, my initial reaction was one of suspicion…

Why do you need to concoct some new market — when there is no way it won’t be abused — to reduce carbon emissions?

As far as I’m concerned, this always seemed like a very difficult and somewhat shady solution to an easily rectifiable problem.

Irrational Economic Decisions

Before we go any further, understand that I am not about to jump into some heated climate change debate.

Quite frankly, I could care less if you think it’s a real and urgent threat or just some left-wing conspiracy designed to line Al Gore’s pockets. This is for you to decide — and it really has no relevance to our bottom line.

I will, however, not hold back when it comes to any questionable mechanism or technology designed to mitigate carbon emissions.

Just as we need to be aware of the opportunities in clean energy and sustainability, we also need to be fully aware of the bad ideas and flat-out scams.

Carbon trading is one such mechanism that I’m convinced will only benefit those who game the system.

Carbon capture and sequestration (CCS) is another questionable opportunity that seems to only be of any real value to the Washington elite.

Look at FutureGen, for instance…

A few years ago, FutureGen — which was Washington’s centerpiece for its CCS strategy — was shelved due to the prohibitive cost of implementing the technology.

Although launched during the Bush administration, Dubya put the kibosh on the project after the price tag ballooned to nearly $2 billion… and that was just to build it.

But rest assured, there was plenty of meat left on that bone for a gaggle of pork-hungry bureaucrats in Washington. By August 2010, the Obama administration changed the name of the project to FutureGen 2.0 and then ponied up 1 billion tax dollars in an effort to get this dog to hunt.

But what continues to be paraded around as a solution to climate change is nothing more than just another Washington hustle…

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Some folks over at the CATO Institute put it best when they published the following analysis:

FutureGen has involved classic pork barrel politics since the beginning. As the department originally considered various project sites in Illinois and Texas, the state governments in those two states deployed aggressive lobbying to woo federal officials. Upon news of possible cancellation of the Mattoon project in 2008, Senator Dick Durbin of Illinois swung into action using all his tools as the second-ranking senator to continue the funding to his state. He even threatened to block appointments to the Department of Energy unless it reversed its cancellation decision.

Meanwhile, a House committee considered issuing subpoenas to the Department of Energy to get the details of the decision to change course on the project. Illinois Republicans and Democrats alike have sought to use various legislative means to continue funding for the Mattoon facility. In 2009, the Obama administration revived the project.

The FutureGen project illustrates again the near impossibility of making rational economic decisions with large business subsidy projects. Even if a government agency was well-managed and made decisions based on sound cost-benefit analyses, projects become incredibly politicized.

Don’t Hold Your Breath

While the pork patrol in Washington continues to deal dollars for the CCS scam, the Institution of Mechanical Engineers (IME) in the UK is now demonstrating a new air capture technology that’s designed to absorb carbon emissions.  

The systems, which look a bit like giant flyswatters, are a thousand times more effective at absorbing CO2 from the air than trees of similar sizes.

After the CO2 is captured, it can be either stored underground or used in industrial processes.

I read that these things can cost about $20,000 a pop. This doesn’t include maintenance and operational costs.

The IME has indicated it would take 100,000 of these artificial trees to offset all the carbon emissions from the UK.

I imagine a $2 billion price tag to offset all of the UK’s carbon emissions isn’t a bad deal; it certainly accomplishes the emissions reductions goal a lot quicker than phasing out coal-fired power plants and replacing them with cleaner power generation…

But even if the government bites, you and I aren’t invited to that party.

Of course, if the global community does decide on a definitive price for carbon, these kinds of geo-engineering projects could definitely get a lot of investor attention.

But I wouldn’t hold my breath for that.

International climate talks will continue to drag on, year after year. And they’ll never come up with a legally-binding deal to cut emissions. Even if they did, there would be no effective way to enforce it.

Still, there are plenty of investors who continue to believe the world is going to come together and institute some kind of carbon emissions reduction deal that will magically spawn the integration of cleaner energy.

My friends, you don’t need to wait around for that fairy tale to come true…

The integration of cleaner energy is already underway. And it doesn’t need an international regulatory committee to make it happen.

The Big Picture: A $1.6 Trillion Opportunity

Without any enforceable global regulations, Germany now generates about 21 percent of its power from renewables. By 2020, it’ll be 30 percent… and by 2050, 80 percent!

Here in the United States (which, until recently, has actually been a laggard in the integration of alternative energy), 12.25 percent of all our power generation now comes from renewables. By 2025, renewable energy is expected to supply more than 20 percent of all our power generation.

That’s the reality.

And I can assure you this increase in alternative energy integration has almost nothing to do with climate change. Truth is, it’s little more than the basic fundamentals of supply and demand that are dictating this transition of our energy economy.

Look, China is starved for power and has ponied up billions for wind farms and solar parks. Japan’s jumping on the solar bandwagon as it looks for more power to make up for lost nuclear generation. And Germany and Switzerland are essentially killing off their nuclear power infrastructure and replacing it with wind, solar, and new energy efficiency measures.

Bottom line: Cleaner energy is a global movement worth an absolute fortune.

The global market for biofuels, wind energy, and solar is already worth more than $188 billion. By 2020, that number is expected to reach $349.2 billion.

And that doesn’t even include smart grid systems (worth an estimated $46 billion by 2020), electric vehicles (worth an estimated $250 billion by 2020), high speed rail (worth an estimated $907 billion by 2020), and geothermal (worth an estimated $35 billion by 2020)…

Combined, you’re looking at a total value of roughly $1.58 trillion.

To a new way of life, and a new generation of wealth…

Jeff Siegel
Editor, Energy and Capital