Tuesday, January 13, 2009

US Government Spending and Energy Efficiency Stock

In November of last year, President-elect Obama outlined his then $175 billion stimulus plans. Now the package has ballooned to between 800 billion and 1.3 trillion dollars. It promises to double renewable energy generation, while providing green jobs and tax relief. It also envisions investment in infrastructure, education, and the Internet. As of the beginning of this year, between the Federal Reserve bank, the Treasury Department, and the Congressional Budget Office, government money allocated to manage the economic crisis is estimated at up to $8 trillion. Upgrading the US electric grid alone has a 20 year cost of 2 trillion dollars. It is unavoidably ironic that so much is being budgeted on what amounts to efficiency.

The President-elect and the Congress are working on the details of the recovery plan. The Obama transition team has also been given the green light by the Bush administration to use the remainder of Paulson's $700 billion financial bailout. The Fed is lending billions to financial companies and buying mountains of debt. And the Treasury Department is overseeing the financial bailout program that is in effect buying into a partial ownership of the banks.

Obama's recovery plan includes approximately $300 billion in tax cuts for individuals and families. Business gets $100 billion in tax incentives and refunds to encourage job creation. And there will be $25 billion for infrastructure including investments in building, roads, bridges, and schools.

At a speech at the LSE earlier today Ben Bernanke said Obama's recovery plan could provide a "significant boost" to the economy, although he recommended that the government inject more money into banks. Bernanke also wants the government to do more to manage bad assets and like the President-elect, he wants government to do more to curb home foreclosures.

A letter from Obama's incoming economic adviser Lawrence Summers to congressional leaders on Monday "called for a comprehensive approach — beyond the stimulus package — to deal with the crisis." The Federal Government appears committed to a comprehensive approach to stimulating the economy and Green is an integral part of it. The President-elect is committed to long-term investment in renewable energy. He has also pledged to "modernize more than 75 percent of federal buildings and improve the energy efficiency of two million American homes."

As stated by Obama in a radio address late last year, "First, we will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs"

Environmental values are part of the Green vision of the new economy. Although that vision aspires for meaningful solutions like public transit, energy efficiency tax credits, and a Green national infrastructure bank, the reality is, there are very few shovel-ready projects that qualify for what the Guardian's Dean Baker calls "21st century green infrastructure."

Still, there are industries that are likely to prosper from the influx of government money. Industries related to high efficiency such as building, materials, retrofitting and firms related to electricity distribution infrastructure (communications networks), can expect to grow.

Investors can benefit from massive government spending, but they must be able to identify viable opportunities and navigate against strong macroeconomic headwinds. Understanding where government money will go is key for investors looking to capitalize on government spending. Energy efficiency is central to the Obama administration's economic recovery plan and there are opportunities in industries associated with energy efficiency.

Next: Energy Efficiency Stock Review: The (Smart) Grid

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