FINANCIAL | SUMMER 2009 EFFECT

Ready to Go Green?

by John Gustavson

On numerous occasions, President Obama has stated his desire to transform the U.S. economy into a clean technology economy and create more than five million new green collar jobs along the way. This is more than a campaign promise; some serious spending is already headed for green initiatives.

Of the $787 billion dollar stimulus act, more than $65 billion in spending and tax breaks are allocated for projects and programs connected to energy efficiency, renewable energy, and environmental concerns.

Breaks for consumers

As a consumer of energy, you will want to take note of some new tax provisions. For instance, Uncle Sam will subsidize a portion of your energy efficient home improvements, including a $1,500 credit for installing approved furnaces, windows, and doors. There is also a tax credit for purchasing residential wind, solar, geothermal, or fuel cell systems. The American Recovery and Reinvestment Act of 2009 (ARRA) provides many opportunities, but it will require some research to understand the tax law changes, limitations, and expiration periods.

Investment ideas

Investors may want to consider allocating some of their risk capital to companies poised to benefit from green initiatives. This new trend could hold enormous potential to transform industries, just as the Internet changed communication on a global scale. However, green investing requires a thoughtful approach because of the wide range of businesses involved: wind and solar resources are well established but will need additional supporting technologies. Clean water treatment will demand new infrastructure, distribution systems, utilities, and water quality monitoring. Applying green concepts to industrial processes will promote the development of alternative energy generation and resource efficient production methods. The nuclear power industry will attempt to advance new technologies in a safe and sustainable way, which will involve research and development to address the issue of waste storage and reuse.

Think local; invest global

Interest in green industries is not confined to the United States. Western Europe is well ahead of us in their use of nuclear power and fuel efficient vehicles. China is expected to be a growth engine for the world economy for years to come; however, it is also the world’s leading polluter. The World Bank estimates that between 2001 and 2020, 600,000 Chinese people will die prematurely due to air pollution. The Chinese government also estimates that one third of its rivers are too dirty for agricultural or industrial use. Therefore, when considering investment opportunities, you should consider companies with the potential to deliver their services globally.

Because the industry is still in its infancy, the companies involved in green technology tend to be smaller and have shorter operating histories and low or no profitability. So, placing your bets with a handful of companies may not be prudent, because it will be difficult to pick the emerging leaders from those that will go bust. A good investment option may be one of the several mutual funds and exchange-traded funds that focus on green investing. The Winslow Green Growth Fund (WGGFX) and PowerShares have several exchange-traded funds like Global Clean Energy Portfolio (PBD), Global Water Portfolio (PIO), Cleantech (PZD), and Global Nuclear Energy Portfolio (PKN).

The gas price increase in 2008 helped accelerate the interest in green technologies. While this year’s lower prices have relieved consumers, green industries will need the price of fossil fuels to increase so alternative fuels are economically feasible again. Most experts believe that oil must be priced at a minimum of $60 a barrel for alternative fuel sources to compete. So, it is not surprising that green industries are currently depressed while the cost of fossil fuels hovers around $45 a barrel. On the positive side, green investing may be especially attractive now because many of these funds have declined 60–70 percent from their peak values, creating an excellent opportunity as we emerge from this recession.

As a complement to a well diversified portfolio, green funds may not only be a good investment, they could also help us transform our economy from one dependent on fossil fuels to one that acts as a catalyst for innovation and change.

 

One should not rely on this information for the primary basis of their investment, tax or financial planning. Such general market information does not take into account such factors as an individual’s own goals and objectives, risk tolerance, tax situation, age or time frame. Investments in the stock market entail risk and potential loss of principal. Past investment results are no guarantee of results in future periods. This material may not be republished in any format without prior consent.