Green Building - Green Chip Review

The Profitable Stocks behind Cash for Caulkers

Last week, President Obama outlined the new Cash for Caulkers program.

While the obligatory partisan punches were not unexpected, most folks seem to be pretty supportive of any program that helps us use our energy more efficiently, and of course, that saves consumers a couple of bucks on their energy bills.

For Green Chip readers, this is nothing new.

We've been singing the praises of energy efficiency for years. Especially as it relates to green building. Because let's face it: Not only is the green building industry good for the economy, it's also good for our portfolio. And I'll tell you about a few of the stocks we like in this industry in just a moment.

But first, let's just recap a few important green building figures.

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According to a 2009 green jobs study from Booz Allen Hamilton and the U.S. Green Building Council (USGBC), green construction spending currently supports more than 2 million U.S. jobs and generates more than $100 million in GDP and wages.

The report also found that green building will support 7.9 million U.S. jobs and pump $554 billion into the U.S. economy — including $396 billion in wages — from 2009 to 2013.

Not a bad window for those seeking to profit from the early stages of green building momentum.

Of course, opportunities in green building can be found in more than one place.

There's the most obvious, power generation. And for buildings — especially those in regions with strong solar resources — solar's potential remains solid.

Going forward, we believe the best stocks in solar are still with those manufacturers that retain a significant cost advantage. And these are almost all Chinese players.

In 2010, we remain bullish on Suntech Power (NYSE: STP), Yingli (NYSE: YGE), JA Solar (NASDAQ: JASO), Canadian Solar (NASDAQ: CSIQ), and First Solar (NASDAQ: FSLR). The latter has recently picked up some negative publicity due to its exposure to the German market. But overall, First Solar's cost advantage continues and its utility-scale future remains bright. I would caution against underestimating First Solar's potential in 2010.

There's also energy efficiency and conservation.

While there are certainly opportunities here for companies developing energy efficient windows (and of course, the insulation manufacturers), the more pure play efficiency and conservation opportunities continue to be in demand response.

For our money, we maintain our bullish outlook on both EnerNOC (NASDAQ: ENOC) and Comverge (NASDAQ: COMV).

And then there's lighting, which accounts for 11 percent of the energy use in residential buildings and 26 percent of the energy use in commercial buildings. This is a huge opportunity.

Cree (NASDAQ: CREE) has long been a favorite for LED investors. And for good reason... The company maintains a significant leadership position in the market, and guidance remains solid.

We also like a small, below-the-radar stock called Energy Focus, Inc. (NASDAQ: EFOI). It may not get as much attention as Cree, but the company has some solid partnerships with the U.S. government. We believe this will continue to help the company land some very important — and very profitable — government contracts.

Another Piece of a Very Profitable Puzzle

Aside from energy, green building also boasts sustainability features such as water reclamation systems, environmentally-friendly paints, coatings and sealants, and sustainable building materials. Even eco-friendly flooring gets a nice boost from green building momentum. Interface, Inc. (NASDAQ: IFSIA) is a company that will continue to take advantage of this opportunity with its environmentally-friendlier modular carpet designs.

As a side note, Interface has long been a champion of sustainability, even boasting a goal of achieving a zero environmental footprint by 2020.

My point is this: the Cash for Caulkers program supports just one more piece of a very profitable puzzle for Green Chip investors.

And you better believe we're going to continue to profit every step of the way.

To a new way of life, and a new generation of wealth...

Jeff

The Green Millionaire Infomercial

Publisher's Note: This week, Green Chip Review's Nick Hodge and Sam Hopkins are on the research trail. Nick is in the San Francisco area at the GreenBeat 2009 venture capital conference, and Sam will be rubbing elbows with policymakers on Capitol Hill on Friday during the American Council on Renewable Energy's Phase II Policy Forum. They'll both have special reports for you next week. Today, though, Sam takes you inside a "green" infomercial that could lead millions off the track of real clean energy investment profits.

Good investing,

Jeff Siegel

Publisher, Green Chip Stocks

———

The Truth Behind this "Green" Media Scam

We've gotten a lot of questions at Green Chip Stocks lately about the "Green Millionaire" ads running on TV and online.

Namely, people ask, "Is this 'Green Millionaire' thing for real?"

The answer: Lowercase "green millionaires" are very real. They're entrepreneurs and investors who have sown their own money and harvested value from the global transition to clean energy.

The uppercase "Green Millionaire" you see on the web and during commercial breaks on CNBC is, by contrast, an insulting fraud.

Now, we're not territorial about the word "green." But a simple search reveals that the big book being touted in the Green Millionaire ads isn't a book at all — it's an e-book: more like a pamphlet you download from the net.

Second, the tips that could make you a millionaire by using that book are more Benjamin Franklin than Nigel Williams, the man behind the media campaign. If you drive less and insulate your home, you'll save money. If you buy a diesel car and convert fry grease to biodiesel, you'll save money.

Brilliant, right?

But where does that get you?

From all indications, reading those exact tips in the Green Millionaire book will get you nothing more than an e-mail subscription and recurring billing that is — by several published accounts — difficult to cancel.

People who want to save money (and yes, even make money), while doing their part to contribute to a cleaner energy economy, can invest in a plethora of listed companies.

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The information that the "Green Millionaire" site and book claim to break as "hot tips" is neither hot nor tip-like in nature. Readers don't gain an edge, and they have no real interactive relationship with the Green Millionaire setup. This is public information, available all over the internet at government websites like www.epa.gov and even at Google's corporate Green Initiative site.

Green Chip Review, on the other hand, is a free e-mail newsletter delivering information about what kinds of investment opportunities are out there in cleantech, renewable energy, water, and infrastructure — information we provide without a bogus $1 processing fee for you to download a PDF or receive an e-mail.

We have a broad web presence on www.greenchipstocks.com, www.twitter.com/greenchiponline, and in all of the websites and newsletters that pick up our material on a regular basis.

Green Chip Stocks, Green Chip International, Alternative Energy Trader, and Alternative Energy Speculator are all stock recommendation services that you can choose to subscribe to in order to receive timely, specific information on carefully selected companies and their shares.

You can learn more by checking out our subscription services here: Green Chip Premium Portfolios.

Or, just keep reading Green Chip Review at no cost whatsoever, and we'll keep you supplied with top-notch market info.

As one GCR reader summed it up after a recent report:

"Great article and summary. What's really sad is that I have been getting better background information from you guys than I have from the news media and our elected leaders. Keep up the great work."

You can let your friends who are interested in green investing know to steer clear of the Green Millionaire scam by forwarding this e-mail.

Regards,

Sam Hopkins

Green Building Jobs

I'm not typically one to debate the merits of green jobs because I see the value of green job creation every single day.

Sure, there are a number of studies out there that question the validity of some green jobs or seek to find a more precise definition of what a green job is. And this is all relevant stuff.

But there are also studies that I have to call out as being nothing more than politically-charged rhetoric.

Like the "7 Myths About Green Jobs" study that came out earlier this year.

I won't get into the nuts and bolts, but despite what seemed like an honest approach to a valid question: How do special interest groups calculate how many green jobs new energy policies would create? I quickly found myself reading what hinted at some questionable intentions hiding behind the guise of academic research.

I agree completely with the notion that an honest examination of methodologies used to calculate these green jobs is important.

But the authors of this study lost me when they stated that ". . . green job estimates often include huge numbers of clerical, bureaucratic and administrative positions that do not produce goods or serves for consumption; and that problematic assumptions are made about economic predictions, prices and technology advancements leading some to ultimately favor mandates over free market realities."

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Well, I'm not an economics professor. . . but when unemployment is at 10.2 percent, and a solar company hires an administrative assistant, I think that's completely relevant and should not be trivialized because it may or may not fit into a safe definition scribbled on a bluebook in a college classroom.

And if these guys were really all that concerned about the government favoring mandates over free market realities, than they would've kicked and screamed about the trillions of dollars we shell out in fossil fuel subsidies every year.

But there's no need to spend any more time on this one. The fact is, this particular study has already been picked apart and called out for exactly what it is: a hack piece.

Besides, we have some fantastic new green job numbers to report on today — thanks to a new Green Jobs study from the U.S. Green Building Council (USGBC) and Booz Allen Hamilton.

Green Building Supports 7.9 Million U.S. Jobs

According to this latest Green Jobs study, green building will support 7.9 million U.S. jobs and pump $554 billion into the American economy — including $396 billion in wages — from 2009 to 2013. The study also found that green construction spending currently supports more than 2 million American jobs and generates more than $100 billion in GDP and wages.

Of course, we've been singing the praises of green building for years.

In fact, I can remember back in 2005 when I told Green Chip readers about the "latest" numbers from McGraw Hill, which put the total value of green construction at $10 billion!

In 2008, that skyrocketed to between $36 and $49 billion. And according to McGraw Hill, 2013 estimates put this market at between $96 and $140 billion.

My friends, not only are we talking about enabling very necessary job creation, but we're also talking about the kind of growth that enables huge opportunities for investors.

Since we launched Green Chip, we've covered (and profited from) green building plays in:

Solar
LED Lighting Systems
Energy Efficiency and Conservation
Water Reclamation
Environmentally-friendly Paints, Coatings and Sealants
Sustainable Building Materials

And as the green building movement continues to grow, so will our opportunities.

To a new way of life, and a new generation of wealth. . .

Jeff

P.S. As an interesting side note, this new Green Jobs study also found that from 2000-2008, the green construction market realized $1.3 billion in energy savings. Energy savings forecasts for 2009-2013 come in at $6 billion.

P.P.S. Nick will be in California this week, checking out GreenBeat 2009. In addition to Al Gore and Vinod Khosla, Nick will be meeting with plenty of smart grid executives. . . getting the inside scoop on the smart grid so he can deliver even more profits for his readers.

Masdar Clean Energy

Investment columnists like me love days like today.

I've told you for a few years now about Masdar, Abu Dhabi's ambitious initiative to build a zero-carbon, zero-waste city in the heart of the Persian Gulf petroleum economy.

The Abu Dhabi Future Energy Company endowed Masdar with $22 billion in resources, but it's always been "I'm watching for. . . " or "you'll hear it first when. . . "

And that gets old.

Back in March, we reported that the global financial crisis knocked Abu Dhabi and neighboring Dubai for a loop. Abu Dhabi had to bail out Dubai — known to some as the "Inflated Emirate" because of wild property developments and prices — to the tune of $10 billion.

Future Energy Company CEO Sultan Ali al-Jaber seemed to hedge a bit at the time, even while committing to progress: "2009 is an execution year for us. We will be looking for opportunities worldwide but are being cautious in finding investment opportunities. It is wait and watch now. . . how the economic downturn will be." Like plenty of other world leaders and capitalists with fortune and civil unrest see-sawing before them, the Sultan seethed with uncertainty.

Nevertheless, the goal of making a city that uses water, waste, and fuel with the smallest footprint possible persisted.

Fast-forward to the sweltering summer along the Persian Gulf — the $15 billion first phase of Masdar is not only alive and kicking; it's given us a fresh investment opportunity with Germany's BASF SE.

BASF Becomes Part of the Masdar Team

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With institutions like the Massachusetts Institute of Technology and the nascent International Renewable Energy Association (IRENA, founded this year in Germany), setting up shop in Abu Dhabi and then Masdar City itself, the principality had already accumulated some heavy R&D momentum. How to profit though? In early 2008, I even jokingly wished that we could buy stock in MIT!

But where research and development are concerned, it's much easier to make money from the latter.

That's why I'm glad to tell you that BASF, the world's top chemical company, has been selected to provide next-generation building materials for the construction of Masdar buildings. The company will also be first in line for experimental design endeavors that emerge from this town-sized Petri dish about 11 kilometers outside Abu Dhabi's city core.

BASF will help Masdar developers achieve carbon neutrality with products like:

concrete admixtures that lower emissions by as much as 60%
phase-change materials (PCM), that store and release latent heat in response to temperature changes
low-absorption black roof coating that minimizes urban heating effects
polystyrene and polyurethane insulation to keep Masdar buildings cool when they need to be cool and warm when they need to be warm

BASF, which started in 1865 as a dye maker, is one of those German companies that are better known around the world as an acronym (BMW and VW also come to mind). Its full name is Badische Anilin- und Soda-Fabrik, or Baden Aniline and Soda Factory.

Yeah, it's a mouthful. . .

And even abbreviated, you won't find BASF on the U.S. big board these days. In 2007, the company pulled its Level 3 ADR listing on the NYSE in favor of home-country liquidity on Germany's Xetra electronic exchange (ETR:BAS). Regulatory changes on Wall Street prompted BASF and many others to pull their listings if the liquidity they generated wasn't worth the accounting toil and trouble, but U.S.-based investors can still trade BASF shares over the counter (OTC:BASFY). The company is still maintaining a full investor relations operation for their Level 1 ADR presence.

BASF's somewhat self-effacing slogan is, "We don't make a lot of the products you buy. We make a lot of the products you buy better."

The fact is a lot of the prototypes and variations on existing products that BASF cooks up in the desert in the coming years will be far from anything you've ever bought at the corner store.

Masdar: A Renewable Energy Moon Shot

For example, phase-change material technology comes straight from NASA experiments, and Masdar is shaping up to be nothing less than a renewable energy moon shot by the least likely of nations.

Abu Dhabi's quest for renewable energy success begs a planet-sized question you can't ignore: if the fossil fuel economy is here to stay, why is a major oil producer spending billions to break away from the pack and develop an entire zero-carbon city?

Maybe you're cynical. Maybe Sultan al-Jaber is just a rich kid with a really big train set. Maybe Abu Dhabi just wants to maximize oil output as price volatility gives them record crude prices to take advantage of. Or maybe, as we've been saying of ideas and investments alike, there's something much bigger going on. Something world-changing.

I invite you to join Green Chip International to take your portfolio to another level of access when these trans-border opportunities crop up. It may be a behind-the-scenes industrial mainstay like BASF. . . or a pimple-faced start-up full of excited engineers backed by the most seasoned cleantech venture capitalists out there.

What's clear is that seeds are being sown for tomorrow's market profits to be reaped, and what seemed like pie in the sky yesterday may put a meal on your table today, if you played it right and stayed ahead of the pack.

Regards,

Sam Hopkins

International Editor

Google and Renewable Energy

What's the one industry that's changed as much in the past few decades as energy?

Infotech.

And as their energy demands grow, and electricity becomes more expensive, high-tech companies like Google are increasingly going green.

Consider a few points:

The Lawrence Berkeley National Laboratory, a U.S. Department of Energy research center at the University of California, says data center energy costs can be 100-times higher than those for typical buildings.

In her article about Google's processing power demands, "Keyword: Evil," in Harper's in spring 2008, Ginger Strand notes, "In 2006 American data centers consumed more power than American televisions."

The economics of energy for big IT changes along with political and economic conditions, and

Infotech companies are committed to developing solutions in-house as much as possible.

The target is for Google's internal R&D teams to develop 1 gigawatt of renewable energy that can be produced more cheaply than coal-fired power.

Or, as the techies put it:

RE < C

Google's philanthropic investment arm Google.org has invested $11 million in AltaRock Energy and Potter Drilling, two geothermal companies in the western U.S.

Intel and Google are both pushing hard into power reduction and production. Intel has paved the way in energy-efficient microchips, and Google's constant advances in streamlining daily life make telecommuting more possible than ever.

But with well over 200,000 buzzing servers used to run the world's top search engine, it appears that Google's massive data processing facilities may have started something of an IT arms race.

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The quest for cheap power today is already pushing American tech heavyweights from Silicon Valley overseas, to downstream solutions for energy optimization...

According to Strand's piece in Harper's, "Microsoft has announced plans for a data center in Siberia, AT&T has built two in Shanghai, and Dublin has attracted Google and Microsoft. In all three locations, as in the United States, the burning of fossil fuels accounts for a majority of the electricity."

But keep in mind that the same low-cost draw of Chinese energy is also attracting foreign direct investment that goes further in China than it would in U.S. startups. Intel announced in the last week of October that it will invest $20 million in a Chinese solar power company through its investment arm, Intel Capital.

Moves like that earned Intel the EPA Green Power Partner of the Year designation, awarded to companies that voluntarily move to minimize their carbon footprint and ramp up efficiency.

Chinese universities are also graduating hundreds of thousands of engineers every year. That gives Google, Intel, AMD and others a crop of the best in the Middle Kingdom to help further the company's global efficiency strategy.

Applying IT Energy Lessons Nationally

Carbon neutrality is a primary goal, and the next step is fostering new power generation techniques for server farms and other juice-guzzling technologies.

In September, before the stock market collapse got Washington talking about large-scale investment projects and job creation schemes, Google CEO Eric Schmidt spoke passionately about political will and competitive reality to a roomful of his peers at the Corporate EcoForum:

"We have a total failure of political leadership, at least in the U.S., and perhaps the world," Schmidt asserted.

"Why not retool the infrastructure in the U.S.?" he added rhetorically.

Well, there's no good reason why not, other than putting off until tomorrow what could be done today.

Google and Intel see energy efficiency as an industrial imperative. To increase shareholder value and minimize costs, smart power is a must.

Same goes for the country and the world. Taxpayers will reap the rewards of energy investments with jobs and GDP growth. Schmidt sees a pathway to the kind of sustainable competition that can move us forward, rather than engaging in a race-to-the-bottom mentality of outsourcing and cost-cutting that has dominated in recent decades.

It's no wonder, then, that Schmidt is rumored to be on the short list for a national chief technology officer position that Barack Obama has promised to create, in the event he wins office next Tuesday.

Google has set the standard for IT excellence since the turn of the millennium. Out of the thousands of companies that rose and fell during dot-com mania, Google survived to change the way information flows and the way many industries work.

Whoever wins on Election Day, we'd like to see Google, Intel, and others take the lead in a comprehensive initiative to create a new energy economy.

Regards,

Sam Hopkins

Green Hotels

First off this week, I want to thank those of you who put your two cents in about my column on energy efficient transportation and how higher oil prices are squeezing companies and consumers alike.

I love to see comments like the one here from Captain Lindsey Powell, who flies a Boeing 757 for a living. Lindsey gave us a pilot's-eye-view on air travel, with the most current numbers you'll find.

"As a Captain of a Boeing 757, this week I flew 180 people from Washington to LAX. We burned 26,000 pounds of fuel (3,800 gallons) at a cost of about $14,000 total fuel bill. This equates to $78 per person for fuel. Another $1 per gallon would add another $21 per person each way on this full flight.

Compare this to driving the 2600 miles alone, you would have to get over 100 mpg to burn the same 21 gallons per person.

It's still an efficient, albeit stressful, way of travel."

Thank you so much for your input, Lindsey. It's one thing to write about market movements, but it's quite another to get the scoop from the cockpit.

If you want to make a point about a Green Chip Review article that hits close to home, please avail yourself of the "Comment on this Article" link right at the bottom of this page.

Now, on to this week's topic: green hotels... where we look at travel from a different angle.

The Push Toward Green, Energy Efficient Hotels

If taking a vacation meant nothing but traveling, no one would go. Time spent in on plains, trains and automobiles takes its toll on the body and mind, and by the time you get from point A to point B you just want to kick back and relax.

But the fact is that even when you're lounging around on the beach or sweating out your stress at a spa, energy plays a role in your holiday.

Like airlines, hotel chains are facing stiff headwinds.

Consumer confidence is down and fuel costs make vacations prohibitively expensive for many

Energy costs for facilities—especially ones with low occupancy—are squeezing margins

Water supplies in many regions are meager, forcing hotel usage cuts

Oppenheimer Funds just downgraded three major hotel chains based on the above factors and relatively weak international growth to balance a U.S. slowdown.

Marriott International (NYSE:MAR), Choice Hotels International (NYSE:CHH), and InterContinental Hotels (NYSE:IHG) were all moved from "outperform" to "perform" on June 4.

So in the near term, these companies' stock prices may trade within a range dictated by how well they can surmount profit obstacles. The long-term picture is good, though, for ones that establish comparative advantage in energy and water efficiency.

Going Green: Why Every Water Drop Counts in Hotels

If you've stayed in a hotel recently, you may have seen a new note hanging next to the classic "Do not disturb" tag.

Many major hotel chains are now gently encouraging guests to reuse towels to cut down on water for laundry use. If a towel is too soiled to reuse, toss it on the floor. If not, hang it on the door to dry.

Hotels are also purchasing front-loading washing machines, which use 40% to 60% less water and between 30% and 50% less energy than top-loaders.

You can imagine the reduced headache this leads to for resort managers in U.S. dry spots like Las Vegas, and internationally at Dead Sea resorts in Jordan and Israel.

Though Memorial Day travel volume seemed robust here on the American east coast, the colliding threats of recession and inflation mean the time to make efficiency investments and stay competitive is now.

Marriott International has plans to reduce energy and water usage at its hotels and resorts by 25% in coming years. Marriott is also installing solar power units at 40 of its hotels, with more such improvements to follow.

Outside the suites, Marriott inked a deal in April with Brazil's Amazonas Sustainable Fund to donate $2 million for the protection of 1.4 million acres of rainforest.

That points to a separate but important effort by executives to appeal to green consumers. by building a brand tied to corporate social responsibility.

There are also a plethora of smaller hotels that, being more nimble and not having to roll out efficiency measures or buy devices for dozens of buildings, have joined the Green Hotels Association to tie travel to a zero-carbon lifestyle.

You can find a list of these hotels, motels, and other inns at www.greenhotels.com.

As for the big boys and stock buys, Marriott (NYSE:MAR) looks appetizing right now considering its efficiency enhancements. It's trading near three-year support levels just above $30, and even though Marriott's Q2 revenue-per-room forecast was recently revised downwards by 2-3%, we should see recovery by 2010.

What are you looking for in green travel trends? Let us know.

Happy trails to you,

Sam Hopkins

P.S. - In the Green Chip International portfolio we're not just looking at energy producers but companies that play smart with power, in travel, food, or whatever industry you can think of. Fact is, energy prices impact it all, and first movers will be the ones who survive the shakeout. To learn more, join GCI today.

Renewable Energy Advancements

I wish you could buy stock in universities.

Not that I want to turn higher education into any more of a business than it already is, but tell me, is there any more appetizing way to help develop the ideas that move renewable energy advancements?

Colleges across this country, from North Carolina's Appalachian State to the Massachusetts Institute of Technology have their act together, creating laboratories and conducting research that keeps them on the leading edge of the transitional energy economy.

I've been especially bullish on Boston-based MIT, not only for its prestigious reputation but because the school is aggressive about putting knowledge into action.

MIT's key role in the Masdar zero-emission city project in the United Arab Emirates really caught my eye...

Masdar, meaning "source" in Arabic, is a plan for 50,000 people to live in an entirely energy-contained community just outside of Abu Dhabi. MIT is in on the ground floor of the project, getting what amounts to be the biggest petri dish on the planet.

Masdar is now under construction with $15 billion in funding from the Abu Dhabi government, making it the largest sustainability initiative ever.

The Masdar Institute, to be constructed on the new city site, will feature MIT faculty and interdisciplinary programs that constantly evaluate and improve the reality of life in town, while extracting lessons for future state and private planners.

However, the construction of Masdar is not expected to finish until 2016... That's a long time to wait, even for a city full of the newest technology, and it's a long way from most of the world.

That's why I'm glad MIT is also moving forward on another front—affordable solar energy.

MIT Solar Project Launches

With a $10 million gift, the Solar Revolution Project at MIT will pioneer material and connection clean energy technology that brings costs down while increasing efficiency.

Capture, conversion, and storage are the three pillars of the planned SRP research, which will in turn, make up part of MIT's broader $100 million Energy Initiative project.

As the Chesonis Family Foundation, which gave the $10 million SRP gift, said in a statement:

By investing in the people at MIT and giving them the freedom to take risks in the lab, we will enable them to be true game-changers-advancing the state of the art to a point where solar power is cheaper and more reliable than electricity from coal.

Of course, MIT is in a place where most companies will never find themselves—they have free money and free rein to hatch ideas and develop them without accounting to shareholders.

Abu Dhabi doesn't have any EPS targets to meet, either, which is why we're looking to the deep pockets of Persian Gulf emirs as an unlikely source for fossil-free energy technology.

Either way, it's clear that IPO companies aren't the only source for solutions. As an investor that may frustrate you, but consider that Abu Dhabi also hosted the first World Future Energy Summit this January, bringing together thousands of participants and hundreds of companies that are licking their lips at a chance to prove their technology in Masdar City.

And MIT? Well, campus press says that school alone is responsible for thousands of patents that have been licensed to companies since 1980. The school's innovations are estimated to add close to $1 billion to the economy, or about $1 million per patent per year.

There is plenty of business to be done.

Kind regards,

Sam Hopkins

By the way... I'm partial to profits, and I'm not content to sit on the sidelines waiting for Masdar to finish or wait for a new American revolution to launch in Boston. That's why your Green Chip editors are scouring the world for TODAY's energy profits, and delivering big-time gains with Green Chip International. In fact, our two most recent picks are up big, and the rest of the portfolio is ready to break out. To learn more, click here.

Green Building Stocks

Carbon dioxide (CO2) has become all but the hottest buzzword of the first decade of this new century. It is the main culprit for the advance of climate change, and is talked about every day in news headlines, editorials and blogs.

But among all the various sources of CO2 emissions, the worst offender is rarely talked about. In fact, I'd venture to guess that many Green Chip readers would be hard-pressed to name it, what with all the discussion of transportation and industrial emissions.

Although those two sources are serious perpetrators worthy of attention—at about 27% and 25%, respectively—the biggest source of US carbon emissions is buildings, at 48%. In addition to nearly half the nation's emissions, buildings are also responsible for 65% of electricity consumption, 30% of raw materials use, and 30% of our waste output.

Many efforts are underway to curb CO2 emissions from the building sector, with green buildings leading the way.

Green Buildings and Carbon

Carbon was one of the main themes at this year's Green Build conference in Chicago, which attracted over 20,000 attendees and more than 850 vendors.

As you may or may not know, I've been touting the various ways to profit from mandatory and voluntary reductions in CO2 for quite some time. And, sure enough, the first session I attended at the conference was entitled, "Carbon is the New Gold."

One of the speakers at that session was Michael Walsh, Executive Vice President of the Chicago Climate Exchange (CCX), host of the nation's voluntary CO2 reduction scheme. Under the first phase of the CCX, member corporations volunteered to reduce their emissions 4% by 2006 from a baseline of their average emissions from 1998 to 2001. In the second phase, an additional 6% reduction is to be made by 2010.

Once a corporation volunteers, the contract is legally binding. And if a target is missed, the violator must purchase Carbon Financial Instruments (CFI), which are essentially carbon credits generated either by offset projects or companies that come in below target.

Although there is money to be made in the CCX by generating and selling CFIs, there is little opportunity for the individual investor to profit. But there is another point, highlighted by Michael Walsh, to be made here: The CCX is just the preseason of the carbon market.

You see, carbon trading and offset projects are still in their infancy. According to Walsh, "We're still learning the players and making the rules."

With a 500% increase in the price of carbon since the Kyoto Protocol went into force in 2005, this is one hell of a preseason. And I can't wait to play when it counts.

Future of the Carbon Market

If the initial success of the three primary markets—the CDM, the EU ETS, and the CCX—is any indication of the future profit potential of trading and reducing carbon, there is going to be some serious money made.

Already, the carbon market is worth $32 billion in its infancy. And, according to a report by research firm Celent, it's scheduled to grow to over $58 billion by 2012. That's an 81% growth in market size in just four years.

With that kind of growth, financial institutions the world over are looking for a way to get in.

"The opportunity is that it's a new product area that's not traded very heavily on exchanges right now," says Niamh Alexander, an analyst at Keefe, Bruyette & Woods. "Lots of exchanges are likely to come up with different structured products to participate in that market."

Even the New York Stock Exchange (NYSE) is entering the game. They've partnered with French bank Caisse des Depots to launch a market for carbon trading by early 2008. That system will allow the sale and purchase of carbon allowances and credits just like any other commodity.

Other institutions like the New York Mercantile Exchange (NYMEX) and the CME Group are also looking at offering ways to trade carbon contracts. The time frame, however, is still unknown.

According to the author of the Celent report, Axel Pierron, things in the carbon market would happen more quickly if there were less uncertainty surrounding regulation. Because for all of the various mechanisms—voluntary or mandated—for reducing and offsetting carbon emissions, there are as many sets of rules and regulations.

Clarity After Kyoto

Of course, we get the basics. Under Kyoto, participating countries are to reduce their emissions 5.2% below a 1990 baseline by 2012, with targets along the way. In order to meet targets, countries hand down emission allowances to individual companies.

If a company is going to miss its target, it has to buy carbon credits from one of a variety of sellers, including companies with excess allowances, brokers, CDM developers, or an approved exchange. Simple, right?

Not quite. Some countries elected not to hand down allowances to companies, instead opting to handle emission reductions on their own. Some governments, like the Dutch, have created entire programs to handle this. Others go to the newly established World Bank Prototype Carbon Fund (PCF), which represents six governments and 17 utilities, for the purchase of carbon credits. And there's more.

Some countries, like those in Europe, are allowed to bundle their allowances and divvy them up however they want. So, for example, one country in the EU may have significantly different targets than its neighbors. And not only are these countries allowed to band together, but they also have their own carbon market called the EU Emissions Trading Scheme (EU ETS).

Plus, there are also multiple ways to generate credits. The Clean Development Mechanism (CDM) allows industrialized countries to invest in emission-reduction projects in the developing world, while Joint Implementation (JI) allows developed nations to invest in projects in other developed countries.

And all those projects have to be evaluated in a lengthy United Nations certification process.

You can see how all this adds up to complications and makes the red tape even stickier. And carbon traders have become so concerned at the lack of transparency and the uncertainty of post-Kyoto markets that they're threatening to withdraw billions of investment dollars unless a successor to Kyoto is announced in the near future.

Those dollars, according to one analyst, could be shifted to voluntary markets in the future, as such schemes are not affected by an expiring treaty. Especially if the slow UN processes continue to affect carbon industry juggernauts like EcoSecurities Group PLC (LON: ECO), which just took a 46% hit in its share price after it failed to meet earnings expectations because of what it called bureaucratic delays, they might be tempted to turn to the voluntary markets.

Back to Green Buildings

Although I've substantially digressed from my original thesis, here's what I was trying to get at.

Buildings are a substantial source of global and domestic CO2 emissions. And as the number of green buildings increases, so to do the opportunities for carbon credits, offsets and profits.

Although they're not in the carbon game yet, Liberty Property Trust (NYSE: LRY) is already profiting from green building. They already have a host of green buildings in their portfolio, including the $500 million Comcast Center in Philadelphia. Sandy Wiggins, a director of the US Green Building Council, has even gone so far as to call the company a "poster child for commercial green development."

Liberty is profiting from the increased rents associated with green buildings and their tenants are benefiting from lower operating costs thanks to increased energy and water efficiency and greater productivity from their employees. It's a win-win.

And if Liberty can begin to harvest and sell carbon credits, that's when the profits will really start pouring in. Right now, though, the benefits of energy efficiency and the associated reductions in carbon are being passed along to the utilities—a problem for which Liberty is working hard to find a solution.

I'll leave you with a few quotes I jotted down at the GreenBuild 2007 conference from John Gattuso, Senior VP of National and Urban Development for Liberty, regarding green building . . .

"It's an absolutely compelling economic case."

"Any rational developer would pursue green buildings."

"This is the way to make more money."

That's what we're all about.

Until next time,

Nick

www.greenchipstocks.com

The Return on this Investment? 20-to-1. . .

In 1981, I spent many winter afternoons sitting respectfully at my desk, shivering underneath a wool hat and scarf while my fifth grade teacher tried to ignore the small puffs of fog that fell out of her mouth following every sentence.

The school I attended was built in the early 1930s . . . and the furnace was shot. To make matters worse, the classrooms were equipped with old lead glass windows and splintered window frames. So occasionally, when it got really windy, our papers would actually move on our desks.

The point is—it was freakin’ cold!

Of course, it wasn’t long before that school was demolished and a brand new building was erected. Problem is, while it may have working heat today, it’s still an enormous energy hog.

In fact, many of today’s school buildings are still poorly designed structures that waste massive amounts of energy, built by the lowest bidder.

But thanks to a costly energy crunch on the horizon, our nation’s newest school buildings could be the first of many “Green Schools” designed not only to dramatically cut energy and water use, but also to actually provide comfortable, productive and healthy work environments for students and faculty.

Oh . . . and there’s an opportunity for investors here too!

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Schools See Green in Green

Last week I attended the Green Build Conference in Denver. During the opening session, Rick Fedrizzi, President and CEO of the U.S. Green Building Council (USGBC), gave an enlightening speech that got this crowd of progressive architects, engineers and builders all worked up.

He talked about the growth of the industry, the increasing numbers of Green Building professionals becoming LEED-certified (about five to ten every business day) and the goal the organization has of reaching 100,000 certified commercial buildings and one million certified homes by 2010, and one million certified commercial buildings and ten million certified homes by 2020.

(Buildings can earn different levels of LEED certification that ultimately up the worth of the structure dramatically.)

But the one part of Fedrizzi’s speech that really fired them up revolved around the dawn of Green School construction.

Here’s an excerpt that I’d like to share with you.

“In America, more than 55 million students and more than 5 million faculties, staff, and administrators go to school every day. That’s over 20% of America’s population that spends about six hours a day in a school building.

Now you know how it works. Schools are built with tax dollars. In fact, in 2007, over $35 billion of those tax dollars will be spent on K-12 construction.

Typically they are built to meet code, and nothing more. They have poor ventilation, inadequate lighting, horrific acoustics and antiquated heating systems.

We send our kids off to prison every morning and expect them to come home with ‘A’s and ‘B’s.’

When you’re a school superintendent or a school board member, maintaining your facilities takes a back seat to doing something about improving education standards and test scores.

But . . .

What if you could do both?

What if I told you we could show you how to save $100,000 a year on the average school?

That we could help you save fully one third of the dollars you spent on energy costs for that school this year . . . and a third of the water costs?

For every school, you could hire two more teachers with that money. Or buy 150 new computers or 5,000 new textbooks.

What if I told you that the total ROI on this school could be 20 to 1?

20 to 1!

What if we told you that all you had to do was build your school green and you could cut costs, improve test scores and enhance student health. After you got over your skepticism, you’d probably say:

Prove it.

So we have.

I’m extremely pleased to announce that today we are releasing a comprehensive report that demonstrates a direct and scientific correlation between building design, materials, HVAC operations, maintenance and cleaning practices . . . and the health and development of students and staff.”

This particular report found that the total financial benefits of Green Schools are 20 times greater than the initial cost, include significant energy and water savings, and can improve student health and test scores.

Also, the report’s findings show that if all school construction and school renovations went “green,” starting today . . .

Energy savings alone would total $20 billion over the next ten years.

Over 2000 additional new jobs would be created each year just from increased use of energy efficiency technologies.

Teacher retention would improve and dangerous air pollutants that cause respiratory disease would decrease.

Yes. This is going to happen.

And guess what?

Someone’s going to have to come up with the sustainable building materials, renewable energy integrations and next-level water conservation and recycling systems to do this.

And that’s where we’re going to clean up.

While at the conference, I uncovered two companies that are perfectly positioned to take the lead in two different segments of this industry. One is a building-integrated solar provider and the other is an ultra-efficient lighting company.

I met with representatives from both companies during my trip. And after those meetings, I’m confident that both of these companies will soon find a spot in our portfolio.

In the meantime, to find out more about the publicly-traded companies currently operating in the Green Building sector, join our free Green Chip Review Daily Updates today.

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Green Goes Modular

In the late 1800s, a small blue-collar neighborhood known as Hampden sprang up just a few miles northwest of what is now Baltimore’s inner harbor. Within walking distance of the textile mills, Hampden became home to a generation of honest, hard-working Americans that lived on modest incomes and boatloads of pride.

The sturdy brick rowhomes that lined the quiet streets and cul-de-sacs in Hampden were adorned with meticulously kept lawns and vibrant gardens. Residents could do all their shopping without ever having to leave the neighborhood. And local bars and restaurants provided inexpensive escapes from a daily grind that most today wouldn’t be able to endure for more than one day.

Of course, over the years, the neighborhood changed. And by the 1970s, much like most of the city, Hampden found itself in the midst of record unemployment, a drastic increase in crime and an infrastructure crumbling under the weight of neglect spurred by a mass exodus to the suburbs.

Needless to say, it didn’t take long for the real estate market to go bust. And all of the sudden, you could get a pretty decent two-bedroom home, in a relatively safe area for practically nothing!

And this lasted for awhile.

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In fact, in 1996 I bought one of these beauties for about $60,000. Two-bedroom, two-bath, backyard garden, the whole nine yards.

By 2004, houses on this very block were going for $200,000!!!

Now, don’t get me wrong. As an investor, of course you’d be happy to see the value of your home increase well over 200% in eight years.

But if you were looking for a place to live – for $200,000 you could do a lot better. Especially when you take into account today’s crippling energy costs.

Because let’s face it – these old homes, and even many of today’s modern homes, are energy-sucking vortexes that can certainly put a hurting on your wallet.

Though it’s for this very reason that new trends in green building are now gaining serious momentum. And not just on the commercial side either.

Green Goes Modular

Years ago, when many of us first started learning about residential green building, we saw oddly-shaped homes made from old tires and beer cans in the middle of the desert. They were built by the wealthy and eccentric. They boasted gigantic solar panels and homemade windmills. They were energy efficient, quite creative – and completely impractical for most people.

But that’s all changing!

Thanks to massive hikes in utility costs, more and more consumers are now actively seeking energy-efficient appliances, building materials and renewable energy applications to help ease this economic burden.

There are also a number of well-established developers now integrating green-building practices within their residential and commercial projects. In fact, just a few days ago, Xantrex Technology, Inc. (XTX.TO) was selected to supply solar power to a 450-unit housing development in Roseville, California.

There are even modular ‘green’ homes you can get for about $180,000 a pop.

I’m serious.

Listen, I wasn’t kidding when I told you this stuff is going mainstream. And it isn’t costing a fortune either.

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A small, two-bedroom, two-bath modular ‘green’ home recently went for approximately $178,000. And this does not take into account the energy savings!

Michelle Kaufman Designs (MKD), a group of ‘green’ architects and designers have taken the lead in modular ‘green’ homes by integrating the low-cost of a modular home with green building standards…like energy efficiency, recycled building materials, healthier levels of indoor air quality and water reduction.

They call their modular ‘green’ homes, Glidehouses – and these aren’t the doublewides that are often found in the punch line of a “You know you’re a redneck if…” joke. These are next-generation homes with all the benefits of green building applications – but at a fraction of the cost.

And for Green Chip investors, this represents a potential trend in green building that could easily translate into even more opportunities for the ‘green’ companies we’re already profiting from.

Because while MKD is not a publicly-traded company, some of the companies utilized in the construction, operation and maintenance of these homes are.

You see, we’re not just talking about wood and nails here. We’re talking about the whole ‘green’ shebang!

With the Glidehouse…

The house can be positioned on its site to minimize solar loss in the winter and solar gain in the summer.
The roof is sloped to receive solar panels and create a clerestory window that brings in natural light and minimizes the need for artificial lighting.
Windows are placed to maximize solar benefits and natural ventilation.
Wood-to-wood wall joints are precisely caulked to make the house airtight, minimizing the vulnerability to mold and lower heating and cooling loads.
Kitchen cabinets are free of formaldehyde.
Kitchen appliances are energy-smart.
Bathroom fixtures, such as the toilet and tankless water heater, save water and are energy efficient.
Walls are finished with non-toxic paints.
Energy-efficient fluorescent lighting is used throughout the house.

All of this represents further opportunities for solar firms, energy-efficient appliance companies, non-toxic building materials and paints companies and even water-reduction and recycling companies – somewhat similar to Zenon Environmental, Inc., (ZEN.TO), a water recycling and treatment firm which was recently acquired by General Electric (GE:NYSE). (The stock shot up 53% the day that deal went through!!!)

There are a number of profitable, publicly-traded companies currently being tapped by green builders. To find out more about these companies, visit Green Chip Stocks .

Until next time…

Jeff Siegel

Managing Editor, Green Chip Stocks