Who Wins From Cap & Trade?

On Friday, the House narrowly approved the Waxman-Markey bill. This legislation will, for the first time, put a (indirect) price on CO2 emissions.

Most of the permits will be given away at first rather than being auctioned off. This will greatly ease the transition, much to the benefit to coal oriented utilities like American Electric Power (AEP - Analyst Report).

According to calculations provided by the Congressional Budget Office, the cost of this bill should be very modest at about $175 per household per year by 2020. (The $3,000 number being thrown around by opponents comes from a self-interested study by the American Petroleum Institute.)

The bill's goal is to reduce carbon emissions by 17% from 2005 levels by 2020, and by 83% by 2050. The bigger idea is to have the rest of the world to go along with similar legislation, since recent evidence shows that climate change is happening faster than even the most pessimistic estimates of a few years ago.

Without the U.S. taking action, it will be impossible to bring major emerging emitters like China and India on board. While getting them to play ball is by no means guaranteed, China and India will not be on board without participation by the U.S. This makes passing a Waxman-Markey a necessity.

The bill will require that by 2020, that 20% of all U.S. electric power come from renewable sources. The means that the Wind Turbine unit should be one of General Electric's (GE - Analyst Report) best performing divisions going forward. However, I'm not sure that it will be enough to totally move the needle on a firm the size of GE. Still, GE will get a benefit, and is a fairly conservative way to play it.

More direct plays like First Solar (FSLR - Analyst Report) and Evergreen Solar (ESLR - Analyst Report) are not exactly cheap, which makes them more risky. However, the potential upside is also huge.