The U.S. Supreme Court has ruled that the Environmental Protection Agency (EPA) has the authority to regulate carbon dioxide emmisions. The ruling means the EPA must regulate automobile CO2 emissions unless that agency can show the science of global warming is too uncertain to justify action. Although few expect the ruling to lead to immediate regulatory action, the decision has provided strong momentum to alternative energy stocks since Tuesday.
The 5-4 decision has been widely criticized, with some calling the move an act of "judicial imperialism". Article III of the Constitution states that the courts should not meddle in executive branch authority, and in revoking EPA policy, the Supreme Court has showed no modesty. Critics argue that the decision is similar to the Roe vs. Wade abortion decision, where judges decided they must save the people from themselves. In a nutshell, the Supreme Court ruling states that global warming is too important to be left to an elected president or Congress.
The Supreme Court decision comes as the United Nations' Intergovernmental Panel on Climate Change gets ready to release a major report on April 6. Among other things, the report will outline some of the regional impacts of global warming around the world.
More funds are likely to flow to the alternative energy sector on the back of the Supreme Court ruling and the UN report. As we have argued before, the historic pattern between crude and solar stocks is about to change. The main driver of alternative energy stocks in the medium term should be governmental concerns about global warming, not the price of oil. So even if we had to see crude prices drop on easing geopolitical tensions and a global economic slowdown, alternative energy stocks are expected to remain well supported.
We could see volatility in alternative energy shares surge as more investors jump on the bandwagon. Solar plays have been given a great deal of attention recently, and valuations have skyrocketed. But what happens if wind power suddenly pushes solar out of the limelight and becomes the hot energy alternative? Long-term investors will probably want to look at a few ETFs focused on alternative energy to hedge their green bets:
- New Alternatives Mutual Fund: They invest heavily in solar companies, but the fund is well diversified with investments in ocean energy, wind power and hydropower.
- PowerShares WilderHill Progressive Energy Portfolio (PUW)
On a related note, the momentum from the Supreme court ruling has helped SPWR to break though a key resistance level. If the shares rally above $49 can be maintained, it would be a near-term bullish development for the stock.
Reuters called the U.S. Supreme Court decision "a stinging defeat for the Bush administration." If politicians can't turn words into action, I'm happy to see that the Supreme Court is willing to take climate issues seriously.
Disclaimer: I do not own any stocks mentioned above. I do not give investment advice. Do your own research. Do not rely on anything in this blog to make investment decisions. Consult an investment professional familiar with your specific financial situation before buying or selling any security