The American auto industry’s fall from grace coincides with a shift in the public’s perception of personal transportation. Higher gas prices and a new environmentally conscious attitude have pushed gas-electric hybrids and efficient diesels to the top of car buyers’ wish lists — leaving hulking SUVs to rust on the side of the road.

Add in climate change concerns and you have yet another dilemma for automakers. New government standards mandate total fleet averages to meet or exceed 35.5 miles per gallon by 2016. The new measure is part of an attempt by the federal government to limit greenhouse gas emissions.

It won’t be impossible to buy a gas-guzzler after the new fuel-efficiency standards take effect. However, your choices will probably be very limited. It’s doubtful that a struggling automaker will dole out the development costs to bring a nine-seat SUV to market only to have to drag down its required mileage average. So even if you are able to locate the SUV of your dreams seven years from now, it will probably cost much more than you would expect…

While Gas Guzzlers Are Punished, Coal Wins Big

Of course, cars and trucks aren’t the only cause of carbon emissions. Coal, the fuel of choice when it comes to power generation in the U.S., is right near the top of the list. In fact, coal carbon emissions have increased by more than 18% since 1990, while petroleum carbon emissions have increased 10.8% during the same time period.

Despite coal’s impact on the environment, new proposals to curb coal’s carbon footprint appear extremely lenient. So while new mileage laws are set to clamp down on American autos, coal will essentially get a free pass — all thanks to a proposed “cap and trade” system.

Cap and Trade: Government Concessions Guarantee Coal’s Future Success

Proposed legislation addressing carbon emissions isn’t exactly a carbon tax. Instead, the president and his allies in Congress have come up with a cap-and-trade system. Essentially, carbon emitters would have to buy permits that correspond to the amount of carbon dioxide they pump into the atmosphere. If these companies find a way to clean up their act a bit, they could sell some of their permits to more notorious polluters.

The intention of a system like this one is clear. However, there’s no way a proposal with any teeth will ever become law. The Economist reports:

“The system would motivate everyone to reduce emissions in the most cost-effective way. It would raise energy prices, which is the point, but it would also raise hundreds of billions of dollars, most of which Mr. Obama planned to give back to voters. Alas, that plan looks doomed.”

By the time the cap-and-trade proposal was watered down to potentially win enough votes, supporters were left with a bill that offered almost all of the carbon permits for free, with only 15% being auctioned. And the auctioning won’t even kick in for more than two decades.

While stricter mileage requirements will keep automakers in line, coal (and other traditional, dirtier energy sources) will essentially be allowed to thrive unchecked for years to come.

That’s why now is the perfect time to invest in a small-cap coal company. More on that in just a minute…

Coal: America’s Most Plentiful Energy Source

If you live in the United States and your house is on the electrical grid, chances are very high that at least some of the energy used to power your home is courtesy of a coal-fired power plant. In fact, almost half of the energy in the U.S. comes from coal…

It’s undeniable that coal is one of our most precious resources. So why did this seemingly recession-resistant commodity crash and burn last year?

Coal was hit hard by a broader pullback in commodity prices and the recession — which has weakened the demand for steel — whose production relies on higher-grade coal used in fire blast furnaces.

The recent boom in coal prices in 2007–2008 has left the industry nearly crippled today. Because prices were rising so fast, most coal companies kept an open book. They left contracts unsigned, to benefit from what they believed would be continually rising prices.

But when it all came crashing down, coal companies’ stock followed suit. And to make matters worse, most companies did not possess any locked-in contracts to keep business booming during the bad times. Consequently, profits suffered across the industry.

However, one penny stock I’ve been looking at is a small coal miner that possesses some foresight. While every other coal company was leaving contracts open, this miner was closing deals left and right — even during the height of the commodities boom in 2008. It’s a move that appeared foolish at the time. But now this tiny miner is poised to become the “comeback kid” of its sector this year…

If you’re a Penny Stock Fortunes subscriber, you already know the name of this prescient coal play – you got my recommendation to buy its shares early this week.

If not, visit the Penny Stock Fortunes website to learn how my CXS Money-Multiplier System has raked in profitable penny plays in 2009…

Best,
Greg Guenthner

Source: How the Death of the SUV Saved American Coal Companies

Not just coal though…coal seam gas. Black rock is the new black. Rock on.

We emailed our full wrap-up of the sector to our beloved Diggers and Drillers fraternity a couple of days ago. But the big-wig of the sector is Santos (ASX:STO).

Santos, after wooing several potential partners, has found a mate to invest in its LNG export terminal at Gladstone. Petronas, Malaysia’s state oil and gas investment vehicle, grabbed 40% of the project for AU$2.6 billion. Santos must have laid the woo on pretty thick.

But woo is an infectious disease in the hard asset sector these days. You have to wade through a viscous slurry of woo to get anywhere. Romance is blossoming…covetous, greedy-eyed romance. Everyone wants someone else’s stuff.

How else could Australia’s largest sugar producer make 38% of its revenues from building products…35% from aluminium…and just 19% from sugar? It’s been doing some whacky diversifying.

Whacky or not, Gabriel has caught the sweet scent of gains in CSR’s (ASX:CSR) chart. As usual, you’ll find him toiling away down at the bottom of the e-letter.

This new Santos story opens up another door for coal-seam gas producers. BG’s bid at the start of this month was like connecting a jumper lead for stocks with coal-gas. Petronas’ foray will shift share prices up a gear again. Two of the world’s largest LNG producers have thrown their back into Australia’s top-notch coal-seam gas reserves. If they play this right, the stuff should be whizzing out of port and up to China within a few years.

How good is that demand source though?

Huge Growth in LNG Demand

Well, latch your peepers onto this offering from ABARE. It shows you what LNG demand is capable of doing in the next few years. LNG is as good as any fossil fuel, but it’s one of the cleaner ones. So it’s getting top billing these days.

Growth just keeps popping up in the energy sector. A thought hit us late yesterday on the topic. We think the oil price is too hot to touch right at this instant. Further down the track, it’ll be a little cheaper.

But when it comes back a little, that doesn’t mean things go back to normal.

The current spike in oil prices tells you something. No-one has full control over the oil price. The purpose of OPEC in the first place was to keep oil between US$22 and US$28. Obviously it didn’t keep it there.

I recommended Bucyrus about a year-and-a-half ago. The company makes coal and copper mining equipment. I could have gone with a coal-mining company instead. But rising coal prices had made coal companies a bit expensive. Bucyrus’ price was still cheap. It was probably a vote of “no confidence” on a softening domestic market and uncertain global prospects… supposed signs that dirty coal was falling out of favor.

I knew better. It probably had something to do with the fact that I like to keep things simple. And there’s something very simple and compelling about the number 1,000. That’s how many coal-fired plants are scheduled to be built in the next five years, many of them in China and India.

I also knew that China and India had ambitious nuclear-plant expansion plans. So ambitious, in fact, that there was little likelihood of coal taking a back seat from either country stepping up its nuclear plant construction timetable.

And nuclear – not solar, wind, or geothermal – is the only competitive energy source to coal, in terms of cost and scale. Oil and gas? C’mon. On a per kilowatt basis, they weren’t competitive two years ago. Now, they’re completely off the map.

The other thing I know about coal plants is that they don’t die. They just get rebuilt as they get into their 20’s and then 30’s. Sort of reminds me of Northwest’s aging fleet of airplanes, except you don’t have to fly coal plants, thank goodness.

This brings me to the third thing I know about coal plants. To paraphrase an old Geritol commercial, they don’t get older, they get better. (That commercial has to be at least 25 years old. Do you remember it?) Let me explain.

A great deal of equipment that goes into coal plants has shelf lives of between 10-20 years. And replacing them is a little tricky.

In some ways it’s like you and I going out and getting a new washer and dryer to replace the old one. The new ones will be more effective and efficient. That is, it’ll do a better job washing our clothes and it’ll do it on less energy.

But our washer and dryer aren’t hooked up to a vast and complex array of machinery – all working together to pump out electricity. Replacing a 15-year old piece of machinery with a new one is hard because they usually aren’t made anymore. The new-and-improved part usually comes in a slightly different shape and size. And these small differences can create huge headaches. Even getting it from the OEM (original equipment manufacturer) is no guarantee that you can slip it into the factory without a great deal of re-engineering.

This brings me to the final (sort of) thing I know about coal plants. They’re cleaner than you think. Replacing parts and components is a chance to upgrade. If you’re going to spend serious money and have engineering challenges, you might as well go for the replacement machinery that gives you the most improvement in not only effectiveness and efficiency…

But also in the environment. Oddly enough, as these coal-fired plants all over the world get older, the environmental gap between them and ever-cleaner new plants gets smaller, not bigger.

I happen to know this because at one time I supplied old coal plants in Asia with new parts from American OEMs. These plants weren’t pretty to look at. The re-engineering tended to give these plants a meandering jerry-rigged look. One of the ugliest coal plants in all of creation was one in Taipei. I supplied a ton of parts to it (I don’t think there’s any connection between my role and how ugly it was, but I can’t swear to it.) But it also was one of the most efficient coal-fired plants I knew.

Just goes to show you, looks aren’t everything.

Look, coal will never be the flavor of the day. And, l guarantee, every few years it’ll be written off. Don’t believe it. When oil and gas end their run and begin to drop, coal won’t follow. Of all the energy commodity plays, it’s the most durable… safest… and longest-lasting.

Coal plants aren’t the only things dependent upon a constant stream of parts. Bucyrus’ after-sales market is huge. When I found out that the company was doubling its capacity to make spare parts for its used mining equipment, it struck home.

Spare parts aren’t glamorous or sexy. But it’s something I know about. If they could prop up coal-fired plants, certainly they could prop up sales of a single company that mined the very stuff those plants need.

Sure, it was just a coincidence: A manufacturer whose reliance on spare parts for growth neatly bookended one of the hidden props of the coal-energy market it was part of. If all our picks had to have these neat little coincidences, we wouldn’t get anywhere with our portfolio, would we?

But sometimes a pick just speaks to you. And you have to listen. That’s how it was with Bucyrus. Spare parts were the hidden story and my own personal insight into the company and the sector it belonged to. Nobody mentions coal and spare parts in the same breath. Not even Rusty, the maestro investor of mining. But it’s a great back-end business. The 175% gain I’ve made from Bucyrus so far (and it shows no signs of slowing down) backs up my contention that you should go with what you know.

When you make a connection that others aren’t making, chances are you’re on to a good thing.Good Trading,

Andrew Gordon

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

[Ed. Note: With a bear market looming, it’s more important than ever to select safe investments that produce monthly dividend income. Click here to learn about Andy Gordon's INCOME service that selects the best dividend-paying stocks available.]