“Whether it is Mayor Bloomberg using hybrids to create the largest and cleanest fleet of taxis in the world, or Mayor Villaraigosa transforming the L.A. Department of Water and Power to help reduce greenhouse gas emissions, your leadership is more important than ever.”

— Gov. Arnold Schwarzenegger

No matter how you look at it, today’s legislation is outlining tomorrow’s energy infrastructure — and Gov. Schwarzenegger’s comments could be a stringent foreshadowing of a new power revolution…

As CO2 cap legislations are passed, like the one the Governator just passed in California, we will begin to see more nuclear power plants, as well as renewable forms of energy production. This will have massive ramifications for the world energy market.

All of this news on carbon caps and clean energy laws is nothing new to you, so I won’t bore you with legislation details. I can promise you that although I’m all for renewable energy, we haven’t seen the end of the carbon fuels era. Instead, we have somewhat of an overlap with making the transition between green/nuclear energy and carbon-based energy. It’s this transition that presents itself with an awesome opportunity — a hidden market that allows you to play all of these forms of energy with one single play.

The carbon cap that Gov. Schwarzenegger passed has eliminated 15 carbon-based power plants in the surrounding states that were set to come online and supply energy to the California power grid. It just wasn’t going to be economical for them to complete production anymore.

This is a huge development for energy markets. For starters, California is a huge consumer of energy.

If California were an independent country, its economy would be the sixth largest in the world. So when 15 power plants shut down, it’s a big deal. Not just for California, but also for any other economy that’s leaning toward green energy policy change. Californians are still going to use their air-conditioning units, lights, and televisions — demand will continue to rise. And the power supply has to come from somewhere, or we can expect to see massive brown- and blackouts.

According to the governor’s new legislation, this energy will be green. But how green?

There are still technological limitations with green energy created from the Earth’s natural forces:

• Solar is only operational during the day and when overcast is limited.
   
• Wind isn’t always around to keep the mills turning.
   
• Geothermal is the most optimal form of generating energy in an Earth-friendly manner. However, it is slow in grabbing the public’s attention.
   
• Hydropower is strictly limited by geography.

Nuclear energy and the market for processed uranium (U3O8) has become the center of attention recently. It is a cost-effective form of energy with virtually no carbon emissions. But it, too, has its drawbacks to keep it from being a universally accepted power source: The disposal of used fuel rods, general safety worries, and an overall negative political image.

Because of those reasons, coal, oil, and natural gas power plants aren’t going anywhere. A system of tradable carbon credits might be developed and used more extensively, but your guess is as good as mine as to when that will happen, dear reader. I just know that brown energy is here to stay, at least for a while.

Here’s an overview:

• Coal liquefaction and other clean-coal technology make it cleaner to burn, but less economical. Don’t forget that the coal lobby is working hard in Washington. Some of its supporters are rail companies and the Navy. The Navy has already made some B-52s coal liquefaction ready, and it is working on technology that would allow coal liquefaction to be used as jet fuel. I imagine that the coal lobby, backed by the U.S. Navy, holds some sway in Washington.
   
• Natural gas is also a cleaner-burning fuel source, but how long will natural gas prices remain moderate? Alaska has already passed some key legislation. This legislation allows for the environmentally sensitive exploration in areas where there are possibly trillions of cubic feet of natural gas. However, without another massive pipeline, this gas isn’t economical to extract.
   
• As for oil, the whole story of Peak Oil is beginning to be more common talk around the local watering holes. I don’t need to get into the details about it, because our oil expert, Byron King, has written to you about the implications of this notion.

Here’s the problem:

Fossil fuel energy emits CO2 as a byproduct, renewable energy is behind the curve in getting online, and nuclear power plants have some innate risks to them. Basically, mitigation, as a result of Peak Oil, is approximately 10-15 years behind the curve, resulting in an attempt to bring on as much power from diverse sources in a very brief period of time.

So I’m not going to say that one form of power is better than another. What I do know is that it will be a combination of all these forms of energy that will keep the lights going; that’s definite. World population is growing, and countries like China, India and Brazil are industrializing at an extreme pace with millions of people who will be coming onto the already-overtaxed world power grid.

Unfortunately, I have to cut it short. On Friday, I will be back with the one market that allows you to take advantage of the growing demand in ALL of these forms of energy. Also, there is one very speculative pick that I’ll throw in as well. Until then…

Regards,

Nick Jones
February 13, 2008

P.S.: I mentioned Byron King earlier. Well, he just recently discovered five microscopic penny stocks that will soon control a relatively unknown type of energy. He calls it the “China Lake Energy.”

The Reason Why Coal, Natural Gas, and Oil Aren’t Going Anywhere was originally featured in the Penny Sleuth.