From Crisis to Opportunity:
Heightened Focus on Energy & Environment

While stabilizing the markets and getting the economy back on track are obviously policymakers’ top concern, energy and the environment are getting more attention than we’ve seen in several decades.

Lawmakers on both sides of the aisle agree that U.S. dependence on fossil fuels jeopardizes our country’s energy independence. Of course, some recognize the impact this addiction has on climate change as well. The spike in energy prices last year has increased the urgency for developing alternative energy sources and increasing energy efficiency as well.

Alternative Energy Sources

Before 2009, the lack of a clear national policy made it risky for U.S. businesses to pursue the large-scale, long-term capital investments in renewable energy that are needed to create wholesale change.

Now, that policy is being created—and alternative energy development is being given a key role in helping promote economic recovery.

Here are some changes we’ve seen to-date:

  • President Obama has been laying the groundwork for a strong federal climate policy with an aggressive goal of generating 25% of U.S electricity from renewable resources by 2025. He has also called for the creation of an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80% by 2050.
  • Creating a clean energy economy was a centerpiece of the American Recovery and Reinvestment Act (ARRA), with allocations of $7.5 billion for renewable energy creation and transmission, $500 million for green jobs programs, and $400 million for research into the development of alternative energy sources and efficiency.
  • ARRA also provided $11 billion to modernize the 100-year-old electrical grid with smart grid technology. The current grid is already unable to keep up with demand but is also not capable of transmitting energy long distances—which is critical to making alternative energy viable on a widespread basis.
  • In Congress, Energy and Commerce Committee Chairman Rep. Henry Waxman and Rep. Chairman Ed Markey introduced legislation requiring a mandatory cap on greenhouse gas emissions.
  • Institutional investor organizations such as the Investor Network on Climate Risk—of which Calvert is a member—are calling for changes such as a national Renewable Portfolio Standard (RPS) and national policies to decrease oil use and greenhouse gases.

Energy Efficiency

Last year’s spike in high energy prices took a bite out of government, consumer and company budgets and has only accelerated calls for renewed efforts on energy efficiency.

Two key results have been: 

  • More federal funding for efficiency initiatives, including a $22 billion in the ARRA and another $2 billion in the omnibus budget bill signed in March. The latter increased this fiscal year’s funding for DOE's Office of Energy Efficiency and Renewable Energy (EERE) 11 times over FY 2008 funding levels.
  • More companies are voluntarily seeking to improve energy efficiency by making eco-friendly updates to existing buildings and using green design for new structures. And with the updated Leadership in Energy and Environmental Design (LEED) Green Building Rating System™ giving more credits for improving existing buildings, this trend may increase.

Investment Opportunities

While many sectors will benefit indirectly from cost savings provided by renewable energy and energy efficiency, we expect companies in the Energy, Utilities, Industrials and Information Technology to see the most activity.

  • While tighter credit conditions and lower energy prices have hurt the alternative energy industry in the early part of 2009, these companies stand to gain the most as funding from the new laws cited above begins to circulate. This includes alternative energy producers, component manufacturers, and those who install and service these systems as well.
  • While Utilities with traditional energy portfolios may see reduced revenue from energy efficiency efforts, utilities that have already made large investments in renewable energy should have a definite advantage in this new environment.
  • In Industrials, electrical equipment manufacturers should have an advantage. This includes companies involved with producing smart-grid equipment, such as advanced energy storage systems and grid-connected distributed generation resources, as well as those who are essential to creating new electrical systems for public and private-sector facilities.

Research firm Energy Insights expects accelerated spending to begin in 2010, with an initial focus on smart meters, boosting electronic equipment and instruments in Information Technology. But software will be needed to operate the grid and enable active energy management, as well as a variety of services required to plan, integrate, deploy and maintain the technologies*.

*Enterprise Innovation, “Passage of ARRA sparks high-tech opportunities for energy, healthcare sectors,” March 25, 2009.

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Calvert Investment Management, Inc. serves as the investment advisor and provides sustainability research for the Calvert mutual funds and institutional investment strategies.

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