As the Copenhagen climate talks wind down, little hope remains that world leaders will reach fundamental agreements to slow down global warming.
Why the stalemate? Pick your conflict. The U.S. and China remain deadlocked on how to reach greenhouse gas reduction targets. Developing countries, including China and India, are accusing the U.S. and the European Union of not being transparent about their intentions and excluding them from negotiations. Then, there’s the issue of aid to help curb greenhouse gas emissions in developing countries with a possible outcome that developed nations will subsidize those countries’ efforts.
Then there are the political games. On Monday, leaders from some 130 developing countries walked out in response to an early financing offer from more developed countries. And on Wednesday, Denmark’s climate minister, Connie Hedegaard, stepped down as president of the conference without much explanation.
Still, some progress is being made. On Wednesday, China’s assistant minister of finance Zhu Guangyao said China would allow poorer developing countries to take priority in receiving aid – its first public agreement on the matter. And negotiators advanced on a deal that would compensate countries for preserving forests.
As more world leaders descend on Copenhagen later this week – President Obama is scheduled to arrive Friday – it remains to be seen whether significant agreements will be reached. But, regardless of the outcomes, some industries are bound to be impacted.
Here are five sectors to watch following the Copenhagen talks.
Energy
Earlier this week, Exxon Mobil (XOM: 61.86, -0.03, -0.04%) announced it would buy XTO Energy (XTO: 43.77, -0.08, -0.18%), the second largest natural gas producer in the U.S. as Exxon expects demand to continue rising. This is just one example of big oil showing an interest in small natural gas producers as they look for ways to stay profitable and relevant.
“Do I think it’s going to change how these large companies go about business in time? Yes I think it certainly will,” says Darin Newsom, a senior analyst with Telvent DTN.
“I think you’re going to see a lot more of those sorts of moves,” says Newsom. “We’ve already seen a lot of oil companies getting more involved in ethanol industry, so certainly it might change their practices some, but it’s something they’ve been anticipating for some time and something that they’re prepared for.”
There’s been so much talk over the last three or four years about climate change, going green on fuel and renewable fuel initiatives that it’s captured the market’s attention, says Newsom. Companies’ R&D departments have been looking into how to approach these changes and have some possibilities etched out, he says. It’s just a matter of how they move forward.
Manufacturing
Manufacturing companies will be watching closely for any decisions that are made on rules to limit greenhouse emissions, such as the cap-and-trade system, which would also allow the trading of emissions allowances. Starting in January, the U.S. government will require all firms that contribute substantially to pollution to report their greenhouse gas emissions.
Of course, the policy initiatives coming out of Copenhagen will affect each company and industry differently, says manufacturing business consultant David Gingrich, founder of All Star Advisors, LLC in South Lyon, Mich. But for manufacturing firms – particularly small to mid-size companies – those changes could have big consequences especially if they are energy intensive, he says. Any change that raises “cost or complexities makes even more marginal companies that are struggling today.”
“Uncertainty causes issues, it causes delay, it causes confusion and when those kind of things happen, especially in a small mom-and-pop shop, they put the money in the bank, lock the door and go home,” Gingrich says.
Some in the industry are optimistic about a new agreement. “I think the bottom line is when Friday comes and goes this week, that we’re going to look back on this and see that we did make progress on this as a global community,” said Steve Fludder, General Electric’s (GE: 15.56, -0.12, -0.76%) vice president of ecomagination in a podcast from Copenhagen. “That’s good for everybody, including GE.”
Companies like GE have spent billions to get a foot in the door. Earlier in the week, GE and Google (GOOG: 488.50, +1.49, +0.30%) made a call-for-action announcement to countries to make information available to individual consumers on the energy consumption in their own homes. “It will help accelerate the adoption of our smart appliances, our power meter product line, our residential scale renewable technologies and our smart grid value
proposition,” said GE’s Fludder.
But as far as consensus on large-scale manufacturing regulations, we’ll have to wait and see.
Car Manufacturers
The auto sector is feeling the pressure for more eco-friendly cars from a few places.
Oil prices remain unstable. Washington is setting new fuel standards. And this week, world leaders are adding to the pressure for fuel efficiency at the Copenhagen climate talks.
Some companies have already responded. Just this week, Toyota (TM: 70.81, -0.26, -0.36%) announced a widespread release of its plug-in hybrid car in 2011. In addition, General Motors plans to build up to 60,000 Chevrolet Volt plug-in hybrids a year starting late next year. Nissan plans to mass produce a fully electric car in 2010. And Ford (F: 11.40, +0.01, +0.08%) and Volkswagen have announced their own plug-in models.
“All these car companies spent so much time behind the curve, and now they’re trying to get out ahead of the curve,” says David Silver, a research analyst who covers Ford and Toyota at Wall Street Strategies. “The Copenhagen talks are pushing these automakers to push the envelope to the next step, [and] fully-hybrid vehicles are the next step as car makers try to lessen dependence on gasoline prices.”
Silver says that car manufacturers will also work on improving the fuel efficiency of their existing vehicles, including the SUVs and trucks. “You’re going to see that every major decision from now on all these models will be based on fuel efficiency,” he says.
Renewable Energy
Many executives from wind energy and solar panel companies are attending the Copenhagen climate talks or watching them intently from afar, but they’re not seeing much new.
Aside from some plans about providing a nationwide incentive for homeowners to purchase and install photovoltaic systems for their homes and New York City Mayor Michael Bloomberg’s bid to field proposals for the construction of the world’s largest offshore wind power complex, the majority of discussions have revolved around two bills that have passed only one chamber of Congress.
In June, the House passed the Waxman-Markey bill, which would mandate a 17% reduction in greenhouse gas emissions by 2020 (and 83% by 2050) from 2005 levels. Shortly thereafter, Jeff Bingaman (D., N.M.), offered up a bill in the Senate that would require utilities to derive 15% of their energy from renewable sources by 2020. Under the bill, utilities would be required to generate at least 11% of their power from wind, solar, biomass and other renewable energies. Another 4% could stem from energy efficiency improvements.
This would be a boon for companies like 3Phases Renewables, a Manhattan Beach, Calif.,-based renewable energy project developer and marketer, says Mike Mazur, the company’s CEO. Although California recently raised its renewable energy portfolio standard, or RPS, from 20% in 2010 to 33% in 2020, he says a national movement would help his business immensely. (Currently, RPS’s are set in roughly 30 states.) “We’re right at the heart of all of this,” says Mazur. “The more renewable energy in the portfolio, the more we can increase our role in green transactions.”
But Jeff Osborne, a renewable energy analyst at Thomas Weisel Partners, says that for most companies, financing is still an issue. Although the Copenhagen talks involved the creation of a so-called clean energy bank that would free up financing for renewable energy companies, the bank move was already listed in the Waxman-Markey bill.
The Copenhagen talks have yet to reveal any new ideas or present any indication of tangible moves by the U.S. and other governments, says Chris Busch, the policy director at the Center for Resource Solutions. However, “the hope is that movement toward a global agreement will help the passage of a bill in Congress,” he says.
Water Conservation & Distribution
Many environmentalists say large-scale water scarcity could result from extreme global warming and could have catastrophic results.
Scarcities have been appearing around the world — in countries of Bolivia, Sri Lanka and Ethiopia — at an increasing rate, according to a 2007 United Nations report.
In the U.S., several publicly-traded companies stand to gain as regions lose accessibility to drinking water. Those include companies in the business of building pipelines that transport water for many miles, such as Northwest Pipe (NWPX: 19.23, -0.40, -2.03%) and Ameron (AMN: 64.72, +1.17, +1.84%), says Brent Thielman, a research analyst at DA Davidson. Northwest Pipe manufactures pipelines that help with water scarcity issues, including in the southwest U.S. Ultimately, their pipelines “run miles on end to move water into impacted areas,” he says.
It’s very likely that water scarcity will grow into a larger problem in the U.S., specifically in areas of California and Las Vegas – markets that don’t have steady sources of water, says Thielman.
Another company worth looking at is Mueller Water Products (MWA: 3.91, +0.10, +2.62%), which is in the business of improving water infrastructure, like pipelines. Pipeline breaks in cities lead to water being wasted, and in the long-term cities will have to upgrade or replace this aging infrastructure, he says. Expect this company to benefit 10 years down the line; for now, it’s unlikely that municipalities will fix pipelines as they’re embroiled in budget cuts. And, currently Mueller is impacted by a slumping housing market. “The last few years have been pretty awful for them,” as fewer new developments have been built, and there’s been less of a demand for new pipeline installations, says Thielman.
Investors should also consider the bottom-line impact water scarcity may have on companies like Coca-Cola (KO: 51.65, -0.36, -0.69%) and Pepsi (PBG), which use water to make soft drinks. Recently, Coca Cola pledged to return as much water to water systems as it takes and said it will replenish water systems in India and Africa.
“The implementation of these kinds of systems will raise costs, but if these companies don’t replace the water they use, looking out a few decades from now, they will run short and the price of water would increase,” says Philip Gorham, an equity analyst who covers Coke and Pepsi at Morningstar. “So taking a preemptive step would make sense.”
As demand for their products rises in emerging markets both companies stand to profit, but they’ll also encounter higher prices in the face of higher demand, he says. “Water is a large input [in their products],” Gorham says. “They just can’t do without a stable consistent water supply.”
Investors should also consider that markets generally don’t wait until a supply shortage to react. “We don’t have to see a supply-demand mismatch in order for the price of water to rise,” he says. “We just have to see market participants believe there will be a mismatch to force prices higher.”
