Obama Climate Change Effect On ETFs (KOL, FCG, TAN, FAN)

The Obama administration will unveil its latest proposal to help curb carbon emissions. The announcement will take aim at power producing plants around the country with the coal plants taking the brunt of the hit. As states are forced to lower the amount of emissions that are produced, the main focus will be on the high carbon emitting coal plants.

Coal

Currently accounting for 41 percent of the world’s electricity and about 40 percent in the U.S., the sweeping changes will undoubtedly lower that figure. The coal stocks have been preparing for this day as the shares of the Market Vectors Coal ETF KOL are down 10 percent in the last year and a whopping 60 percent in the last two years. The changes will not occur overnight, however the trend is not in the favor of coal stocks.

Natural Gas

The biggest winner from the new plan may be natural gas stocks. The cleaner burning fossil fuel emits just half the carbon into the air as coal power plants. As more natural gas is removed from the ground in the U.S. and prices remain low, it will be an option for states to meet the new requirements. The First Trust Natural Gas Index ETF FCG is up 30 percent in the last year and is trading a few percentage points from a multi-year high.

Alternative Energy

Both solar and wind power are being touted as another alternative to the coal burning power plants. With only a very small percentage of the country’s energy coming from green energy sources, there is big upside. However, the economics are not quite there without government subsidies.

The Guggenheim Solar ETF TAN is up 65 percent in the last year as investors are taking a flyer on the long-term prospects of solar energy. The First Trust Global Wind Energy ETF FAN is up 50 percent in the last year, but is often overlooked when investors consider investing in green energy stocks.

Overall, the plan is aggressive and will have a major affect on the way power is generated in the U.S. in the years ahead. That being said, because it is a plan that will not go into effect for a few years, the trading could be volatile in the related ETFs as the specifics are hammered out.