Climate Change Showdown in DC: Energy ETFs in Focus

by on June 25, 2009 | ETFs Mentioned:

Bickering between Democrats and Republicans is nothing new, an American tradition right up there with apple pie, baseball, and fireworks on the 4th. Even on issues that would seem to lend themselves towards a consensus resolution, the two parties have found ways to create disagreements, allowing them to play to the American public and paint their opponents as unreasonable or unconcerned politicians. With signs that the economy is finally beginning to turn (even if it is only the beginning of a long and slow journey back), Congress has turned its attention to clashes that had been tabled and neglected as they battled over bailouts, stimulus plans, and other economic measures. As they slowly turn their attention away from the crisis that has consumed the first half of the year, two issues appear to be taking center stage: healthcare and energy.

While debate in Washington over proposed healthcare reforms is a familiar tune at this point, regulation over climate change and development of alternative energy sources is a fairly new topic brought about by changing times. As the Wall Street Journal’s Greg Hitt and Stephen Power write, the climate change issue isn’t going away any time soon, and is likely to be a defining point in next year’s midterm elections.

According to Democrats who devised and are supporting the controversial bill, the proposed legislation could spur billions of dollars of annual investments and create more than a million jobs, hastening the development of a “green economy” in the U.S. But Republicans argue that the measure too costly and intrusive, instead endorsing an alternative plan focusing on increasing the use of nuclear power and providing incentives for development of renewable fuels.

A resolution to the conflict is by no means imminent, as revisions and additions to both bills are still being discussed by various parties. As the competing bills are revised and updated, they will likely face heavy scrutiny not only from members of Congress but from Wall Street as well. Earlier this week, President Obama pledged to “make clean energy the profitably type of energy,” echoing one of his campaign promises to fully commit to the development of sustainable energy forms that can flourish without government subsidies. Now the question is: which types of clean energy will actually be profitable?

As the ETF industry has expanded in recent years, an increasing number of sector-specific funds have popped up, including several focused on various corners of the energy markets. Among the funds that could be in focus as this situation plays out in Washington are:

  • Market Vectors Coal ETF (KOL): Investing in companies that generate a majority of their revenues from the global coal industry, KOL investors are likely very interested to see how the debate in Congress plays out. As corporations around the world come under increased pressure to reduce carbon emissions, the coal industry seems to be bound for some changes in coming years. The efficiency and sustainability of alternative energy sources, including “clean” coal technology, will go a long way towards determining how this industry performs over coming years.

After a Huge Run-Up in 2009, KOL Has Pulled Back in Recent Weeks

  • Market Vectors Nuclear Energy ETF (NLR): Despite the stigma associated with nuclear power, it is a viable clean energy option, unlike other technologies that have been slow to attract investment dollars and prove themselves to be profitable and sustainable. How large a role nuclear power plays in the big picture going forward remains to be seen, but as mentioned above, it is a critical element of the Republican bill. Another option in this space is iShares Global Nuclear Energy ETF (NUCL), but this fund is still on the small side and may suffer some liquidity issues.

Despite Negative Connotations, Nuclear Power is a Clean and Viable Energy Source


Disclosure: No positions at time of writing.