Winners in Global Warming

A host of businesses are poised to profit from the drive to cut greenhouse gas emissions.

By Jim Ostroff, Associate Editor, The Kiplinger Letter

Laura Steele, Researcher-Reporter, the Kiplinger letters

April 25, 2007

It's clear that greening the U.S. economy will cause pain for some businesses -- especially electric utilities and automakers. These industries stand to bear the brunt of state and federal efforts to fight global warming by placing regulatory caps on the amount of greenhouse gases (GHGs) pumped into the atmosphere. Utilities and autos together produce about 55% of these gases.

Some 15 states, representing more than a third of the national economy, will have GHG emissions limits by 2012, and federal caps will probably follow that. And over the next 10 years or so, look for Congress to gradually increase the minimum average gas mileage imposed on auto manufacturers' fleets. For passenger cars, it's likely to rise to about 40 miles per gallon from the current 27.5 miles per gallon.

Like car manufacturers, utilities are going to have to invest hundreds of billions of dollars to run cleaner. For their part, power companies are likely to pass along to customers the roughly 25% increase in costs that they'll incur for providing cleaner electricity.

However, there is also plenty of gain to spread around, as companies of all stripes seek outside help and new technologies to help them clean up their act. Retail behemoth Wal-Mart, for example, is budgeting $500 million a year for emissions-cutting measures. Bank of America, Exelon Corp., Swiss Re and Toyota have all pledged to reduce their U.S. operations' contributions to global warming over the next few years.

The most obvious winners are alternative energy firms -- those involved in power generation from wind, solar, geothermal sources and biomass. Alt-power's share of the electricity market will grow from about 10% now to 25% over the next 15 years, driven largely by government mandates on the proportion of utilities' output that must come from renewable sources. This is manna for green power brokers such as Green Mountain Power and Renewable Choice Energy, and for firms that perform energy audits and install custom alt-energy systems for manufacturers and others.

The race for renewable juice is also likely to benefit vendors of gas digester systems, such as Landfills+, BeUtilityFree and AgriPower. These companies' gizmos capture methane from landfills, wastewater treatment plants and other organic sources to power electric generators.

The less visible beneficiaries are the legions of suppliers to alt-power industries that will share in the spoils. In wind, there's Zoltek, which makes composite materials used in turbine blades. American Superconductor sells technology that makes wind-generated electricity compatible with the power grid. And VRB Power Systems makes wind-power electricity storage units. In solar, Amonix, Miasolé, Nanosolar, SunPower and several others are developing cheaper, more-efficient photoelectric cells that will soon be the industry standard.

Other firms will mine the coming expansion of nuclear power, which has gained considerable support because it produces no greenhouse gases. One such beneficiary is Allegheny Technologies, a maker of titanium alloys and other specialty metals used in nuclear plants. Vendors of heavy-duty pumps, such as Sulzer Pumps, also are sitting in the atomic catbird seat. USEC, a global energy company, is going to log steadily rising orders for fuel-grade uranium. BWX Technologies is one of the few firms able to do the precise machining on reactor parts. And concrete suppliers such as LaFarge are in for bonanza orders. Each nuclear reactor needs five times as much concrete as the foundation and flooring used in construction of the Sears Tower.

Then there is the army of companies that will help others improve energy efficiency. "One-third of the target greenhouse gas emissions can be eliminated with increased energy efficiency. That's the first thing that companies should consider doing," says Richard Baxter, a senior vice president with Ardour Capital Investments.

If they do so, expect Elster Electricity, Itron, Sensirion, eMeter and SmartSynch to benefit. They sell meters that track real-time fluctuations in power prices, allowing manufacturers and others to better monitor the cost of their energy use. Comverge and EnerNOC make the software and microelectronics that permit power users to adjust their demand quickly. In addition, companies will snap up cogeneration units that tap heat created by machinery and convert it into power. Leading suppliers include Cummins, DG Power Systems and Enercon.

Utilities also will turn to IBM, Invensys Controls, Areva and other IT firms to help develop a more flexible power grid. Why? Utilities need to be able to purchase renewable electricity from multiple local and often far-flung sources, as well as surplus power from businesses and homeowners with their own generating units. So-called net metering laws will actually allow a utility customers' meter to run backward when the business or home is adding power to the grid.

Cleaning up production of fossil fuel energy is another gold mine. Prospectors include Foster-Miller and NeuCo, which make systems that remove airborne pollutants from coal plant emissions. Add to the list E.ON U.S., PPL Corp. and others, which are developing next-generation "clean coal" power plants that produce little or no pollution. Further down the road, services to move carbon dioxide to underground storage -- known as carbon sequestration -- will fatten the accounts of geology surveying firms and for vendors of drilling equipment and steel pipes.

Meanwhile, automakers will seek help from many quarters to keep up with increasingly stringent fuel efficiency standards and to develop low- or no-emissions automobiles. Magna International is among the companies developing ultralight, yet sturdy, steels for auto bodies, as well as steel-aluminum and plastic composites for mechanical systems, all designed to cut vehicular weight. Carmakers will also call on firms such as Borg Warner and SKF for high-efficiency drivetrains and turbochargers plus computer-controlled steering and braking systems. Another group of companies, including ECD Ovonics, Ballard Power and Apollo Energy, is going to feature in a burgeoning market for auto fuel cells.

Nearly all companies and homeowners will be in the market for Earth-friendly building products and fixtures. Put high-efficiency compact fluorescent lightbulbs at the top of the list. An easy and inexpensive way to trim power use, one such bulb can eliminate the need to burn 110 pounds of coal for electricity over its lifetime. Makers include Osram Sylvania, Westinghouse, General Electric and MaxLite. Revised building codes will also push construction firms toward using more substitutes for lumber, glass, concrete and other materials whose manufacture emits high levels of carbon dioxide, the most common greenhouse gas. Newly developed alternative materials include home insulation made from old jeans and jeans scraps as well as boards made from recycled wheat chaff that are used for doors, cabinets and floors.

State and federal governments are playing a big role in generating demand for Earth-friendly products as they strive to lower their fuel bills. Leading items on official shopping lists are special coatings and other materials for green roofs, furniture made from recyclable materials and environmentally friendly cleaning supplies.

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