Corporate America is starting to line up on both sides of the new energy bill working its way through congress, as the industry weighs the benefits and costs of the proposed system to control greenhouse gas emissions. The American Clean Energy and Security Act of 2009, as it is harmlessly called, has generated controversy since hints of what it might contain started leaking out at the beginning of the year. When the text of the legislation was released, the controversy heated up even more. (For more, see Five Companies Leading The Green Charge.)

IN PICTURES: Eight Ways To Survive A Market Downturn

The crux of the issue has to do with the allocation of allowances for carbon emissions that are being given away for free to those industries that produce pollution. The refiners are only being given 2% of the emissions while the electricity generation industry gets 35%. Industries that don't have enough allowances will have to purchase them in the marketplace. Critics say that these allowances are not being given out in proportion to the amount of pollution that each industry produces.

Conoco Phillips (NYSE:COP) is an integrated oil company that owns refining and other energy related assets. The company criticized the bill in a statement released last week, "U.S. refiners will be bearing the cost for roughly one-third of the nation's greenhouse gas emissions but only receiving 2 percent of the total allowances under the current proposal. It is likely that refiners will not be able to pass along 100 percent of the costs of securing allowances." Conoco said that the refining industry is being unfairly tagged with the emissions associated with the consumption of transportation fuels.

On the other hand, NRG Energy (NYSE:NRG), which has 24,000 megawatts of electricity generation capacity, is quite pleased. The company praised the bill sponsors for their "leadership and willingness to seek pragmatic solutions to tough issues." Edison International (NYSE:EIX) also supports the legislation. The company said that it would lead to "reductions in greenhouse gas emissions while minimizing disruptions to our economic recovery." Edison is a power generation that operates through two subsidiaries - Southern California Edison, a regulated utility, and Edison Mission Group, a competitive power business. (For more, see The Industry Handbook: The Utilities Industry.)

Companies that do not have enough allowances are not stuck with buying excess allowances; they can try to reduce those emissions. Dynegy (NYSE:DYN) said during its recent conference call that it had reduced emissions of other pollutants by installing scrubbers at its facilities. Exxon Mobil (NYSE:XOM) recently built a facility to generate power at a refinery it owns in Belgium. The company said that the facility would remove 200,000 tons of emissions per year, or the equivalent of 90,000 cars.

The Bottom Line
President Obama and the accompanying support of strong majorities of Democrats in Congress make it likely that the American Clean Energy and Security Act of 2009 will become law. Corporate America is split as it lobbies to try to influence legislation that will impact its profitability for years to come. (For more, see The Industry Handbook: The Oil Services Industry and Oil And Gas Industry Primer.)

Related Articles
  1. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Fundamental Analysis

    Using Decision Trees In Finance

    A decision tree provides a comprehensive framework to review the alternative scenarios and consequences a decision may lead to.
  6. Economics

    Understanding Tragedy of the Commons

    The tragedy of the commons describes an economic problem in which individuals try to reap the greatest benefits from a given resource.
  7. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  8. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  9. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  10. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  1. Do plane tickets get cheaper closer to the date of departure?

    The price of flights usually increases one month prior to the date of departure. Flights are usually cheapest between three ... Read Full Answer >>
  2. Is Colombia an emerging market economy?

    Colombia meets the criteria of an emerging market economy. The South American country has a much lower gross domestic product, ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>

You May Also Like

Trading Center