Did you know that the United States accounts for just 5% of
the world's population, but 20% of global energy demand? The
massive amount of power we use every day has a major effect on
U.S. trade balances and the global climate. Indeed, the amount of
carbon dioxide in the atmosphere recently surpassed 400 parts per
million, bringing the climate changeissue back in the spotlight
The United States may be poised to curb its growing appetite for
power. The Energy Savings and Industrial Competitiveness Act,
which is wending its way through Congress, would encourage
industrial energy-efficiency upgrades throughtax credits and
stategrant programs, research and development funding and more
stringent efficiency standards for new building codes.
Much of this dovetails with President Barack Obama's mid-winter
proposal for a $200 million competitive state grant program
designed to spur energy-efficiency upgrades at industrial
facilities. In fact, alot of interested partiessupport the
legislation: The U.S. Chamber ofCommerce , the National
Association of Manufacturers and the Alliance to Save Energy have
each expressed their support. Consumer interest groups clearly
love the idea. An earlier version of this bill, brought to a
Senate sub-committee in 2011, noted the possibility of $23
billion in annual consumer savings by 2030 from the legislation.
The move to greater energy efficiency is set to become a
Merrill Lynch's Sarbjit Nahal, who has been analyzing the issue
for a half decade at Merrill Lynch, recently noted that an
expansion of the middle class in countries such as China, India
and Brazilwill boost power demand 30% by 2035, compared to
He added that "End-use energy efficiency offers the greatest
potential to lower both energy demand and CO2 emissions. It
offers considerable low-hanging fruit given that two-thirds of
the economic potential to improve energy efficiency remains
untapped," citing the International Energy Agency. Nahal
concludes that every dollar spent on energy-efficiency
enhancementsyield $2 to $4 in lifetime annual savings.
As an added bonus, there are ample ways for investors toprofit
from energy efficiencygains . A wide range of companies would see
a spike in demand for their products and services, which explains
thebullish view of the legislation from the Business Roundtable.
Investors are already quite familiar with the leading companies
in the field of energy-efficiency equipment. For example, take
Johnson Controls (
. The company, which was already a strong player in the
automotive batterymarket , has made a push into advanced
batteries that can power electric cars and hybrid vehicles.
Yet a clear area of focus for JCI is its "building efficiency"
segment, which comprises a range of products and services that
lower energy costs. For example, the company's new
air-conditioning and heating units consume far less power than
models just five or 10 years old, leading to a steady aftermarket
upgrade business in the commercial construction sector.
In fact, improving the energy efficiency of buildings would be a
huge step forward. "Energy consumption within buildings is the
single largest component of global energy use and CO2 emissions,
at c.40% and c.30%, respectively," noted Nahal. Yet he adds that
"little of this has been captured - with 80% of the economic
potential of energy efficiency in buildings remaining untapped."
The growth prospects for JCI and other companies will surely
strengthen as spending on efficiency continues to ramp up.
According to Pike Research, spending on energy efficiency
technology in the United States has risen 750% from 2005 to $85
billion in 2012, and is expected to exceed $200 billion by 2016.
In addition to Johnson Controls, both
Ingersoll-Rand (NYSE:IR )
stand to generate modest gains from energy-efficiency spending,
as the niche represents a portion of their overallsales base.
They are surely candidates for further research if you are
looking for companies that could profit from rising efficiency
In the next part of this two-part piece, I'll be focusing on
companies that can more squarely benefit from the expected spike
in energy-efficiency spending.
Risks to Consider:
Thanks to fresh scandals involving the InternalRevenue
Service, the State Department and snooping around of The
Associated Press' phone records, the mood for a bipartisan
agreement is again at afresh low, which could imperil this
Action to Take -->
If and when this legislation gets signed into law, look
foranalysts to boost their sales and profit forecasts for many of
these companies. However, treat this as a trading window instead
of a long-terminvestment opportunity, as share prices might
quickly capture all of the long-term gains inherent in the
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.