How Obama's Climate Speech Will Affect Energy Investing

Are New Policies Coming?

Written by Brittany Stepniak
Posted June 25, 2013

It is not often that a president actually decides to get up and give a speech announcing major new policies or policy shifts. However, this may be exactly the situation today when President Obama will make a “major” speech regarding climate change.

President ObamaOver the past weekend, the White House announced details of what to expect and has indicated that this is meant to be an unveiling of Obama's second-term plan in this area, an area in which he has not yet laid out any significant details.

In a video statement, the President indicated that this speech is intended to lay out his entire vision for the direction in which the country should head environmentally. This will include strategies for reducing carbon pollution and fighting climate change. It also seems like there will be some global leadership aspect to this national plan as well.

While all of this may make environmentalists feel warm and fuzzy, there have been a number of different reactions from politicians and lawmakers. It seems as if the President intends to make good on his promise from the February State of the Union address, in which he promised Congress he would act soon if they did not. Obviously, those who feel efforts regarding climate change are too expensive and even unnecessary will not be happy with any new type of national plan or strategy.

What is Expected in the Speech?

While the video released was short on details, as expected, it did give some hints of what the President might cover in this speech.

This speech will take place today at 1:35 pm EST at Georgetown University, and it is likely to cover details for things like new restrictions on greenhouse gas emissions from power plants. There may also be some increased efficiency standards imposed and new ideas or ways to encourage the development of renewable energy sources on public lands.

It is also widely thought the President will spell out a series of executive actions he might take. Many of these would not require the authority or approval of Congress. In fact, this entire plan and strategy may be a direct response to Congress not taking any action in many of these areas.

The Supreme Court has already ruled the Clean Air Act does give the President pretty broad authority in many of these areas, including the ability to regulate carbon emissions. So it seems pretty clear the speech will lay out new methods and possibly programs to cap the emissions of power plants.

Of course, these will also most likely lead to more expansion in government. With new rules, restrictions, and regulations, there will need to be more workers. People will need to actually write these new documents, and there will need to be new enforcement and inspection agents to help ensure compliance.

It will also be likely that the government will generate new revenue from this as a result of a new schedule of fines and penalties resulting from non-compliance or even slower than expected compliance.

President Obama has also stated his speech will be an outline for a comprehensive plan. It will include speaking to scientists in an effort to prompt the development of new types of fuels. He also expects many new fuel sources to be natural and grown by farmers, so there may also be some type of subsidy to help motivate change in this area.

The President also thinks that this will lead to a whole new economic strategy, possibly even a way to get people working again and reduce the unemployment rate. Engineers will need to devise new (likely renewable) energy sources, businesses will need to build and market these sources, and workers will need to help form the foundation of all this.

Even the average citizen will need to play his part in this new Obamavision. It will be interesting to see how this “vision” is detailed and colored.

Which Sectors Might Be Affected?

One big concern is how all of these new ideas and visions which are to be outlined will affect various sectors of the energy industry, particularly in light of the shale boom that's driving the nation forward.

It is common knowledge that due to improved technologies like fracking, the U.S. has been seeing a dramatic improvement in its oil and gas production in the last several years. This is certainly something the industry would like to see continue, and many hope the new policies will spur further development rather than curtail existing efforts.

Obviously, new greenhouse gas emission regulations would not have too much of a backlash on the shale boom, which is happening primarily in states like North Dakota and Texas (although there are a number of other shale deposits waiting for fracking to begin).

The new U.S. Secretary of Energy, Ernest Moniz, has also indicated that while things like fracking have dramatically changed the country's outlook for oil and gas, new progress must also be made. It seems reasonable to assume that this means the administration is keen on encouraging the development of additional energy sources.

One of the biggest concerns of the “new” U.S. energy policy is that the energy security problems of our allies abroad will become national security problems for the U.S. as well. It is likely that these concerns will also play into Obama's speech, with some new incentives for the development of additional energy sources.

How to Play Energy Sector Movement

Without actually knowing exactly what Obama will outline in terms of his plans, a lot of this is still just speculation. However, there are several ways for investors to play this new energy boom in the United States. One way is to invest in some companies that are directly benefiting from existing conditions.

Occidental Petroleum (NYSE: OXY) is a large domestic oil producer. CNNMoney recently reported that Mark Freeman, CIO at Westwood Holdings Group, recommends this one, since it is the largest domestic producer in the country.

Another way to play investments in the energy sector would be to focus on services and infrastructure suppliers. Here, Freeman suggests Kinder Morgan (NYSE: KMI), which has over 80,000 miles of pipelines and 180 terminals; Union Pacific (NYSE: UNP), a railroad company that helps to transport oil and gas supplies for physical delivery; and Schlumberger (NYSE: SLB), a huge oil services company that helps provide technology and project management to the oil production industry.

All of these companies could see solid upward price movements as the result of new energy policies and incentives. The services industries and companies may particularly benefit due to the fact that their fate is not tied to a particular segment of the industry.

A riskier but potentially more profitable way to play this new attention on the energy sector might be to look at some long-term green energy investments. Jumping into companies directly here would not be a good idea, so instead, look for some ETFs.

Two ideas are the Powershares WilderHill Clean Energy Portfolio (NYSE: PBW) and the Guggenheim Solar ETF (NYSE: TAN). These could see some significant price movement if Obama choose to focus more effort on developing wind, solar, and other green energy sources.

 

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