Investing in Pollution Control

 

Slowly we are learning that the best way to control pollution is to prevent it from being produced in the first place. Unfortunately this is easier said than done in an economy that is still based almost entirely on burning various types of fossil fuels, using nuclear technologies and damming rivers to produce electricity. Our energy demands for industrial production, transportation and electricity are the biggest drivers of the pollution problem.

The technologies to prevent and control pollution are improving. Filters are trapping smaller particles and pollutants that would otherwise be released into our air and water. Heating, cooling and lighting systems are more efficient, and cars are capable of getting more miles to the gallon and producing fewer emissions. We would like to see the marketplace reduce much of the pollution problem by stimulating investment and growth in cleaner technologies and industries, and shifting to new ways of producing and consuming energy. But the marketplace is controlled to a great extent by politics, money and power. While market-oriented solutions to pollution problems are developing, their ability to flourish has been stymied and slowed by politics and the incentives or disincentives given to the powers that be and the powers that want to be. We mustn’t kid ourselves into believing that this is a Republican vs. Democrat issue. As evidenced by the recent Enron scandal, the money flows from industry to both sides.

Regardless of politics, the increased demand for pollution prevention and control will be greatly exacerbated by inevitable events like population growth. The U.S. population alone, at about 281 million as of the 2000 census, is expected to reach 306 million or more by 2010. The pressure of such a population on natural resources will force the government and the market to react. Coal, oil and natural gas will eventually become noncompetitive and unavailable fuels. Their reserves cannot last and do not exist in perpetuity; some major resources, like oil, could be depleted in as few as fifty years. Destroying what’s left of the natural splendor of life that once occupied the planet for the greed and affluence of current generations would be a sad situation indeed.

Another one of our greater concerns is and will be the demand for clean, usable water. And that’s not just for human consumption, industry demands huge amounts of water, including the businesses that produce semiconductors (computer chips), drugs and medical products, which are a huge part of the economy, requiring vast amounts of ultra pure water. As you know a key component of Invest/O’s portfolio design is dedicated to water.

Air quality and air pollution control issues are of concern as well. There is controversy over pollutants such as sulfur dioxide and nitrogen oxides, which tend to drift heavily to the northeastern United States with the prevailing winds, originating largely from midwestern power plants. Carbon dioxide is probably the most common greenhouse gas contributing to global warming, coming from a variety of sources including automobile exhaust. All of these pollutants have a widespread national and international effect.

Once again the best pollution control is prevention. The promising outlook for fuel cells and the development of other alternatives and ideas is exciting, especially for investors. Emission free, renewable energy sources are the hope of the future. We need to make them the reality of today. Until these technologies are more widely used, we have to address today’s pollution situation.

In August 2001, Investor’s Business Daily featured an “industry snapshot” on pollution control equipment companies. Financially speaking, IBD says the market outlook for air and liquid pollution control systems are good, especially water filtration systems. Their article describes it as a “$21 billion market…growing 5% to 8% a year.” These businesses are greatly affected by recession, however, largely due to slowing in capital spending by their biggest customers: other businesses.

Here’s some information on just a few of the larger players in pollution control:

Osmonics, Inc. (NYSE: OSM) makes a variety of products used in filtration, separation and processing of fluids. This company was one of the first to make productive use of reverse osmosis, which creates water that is 99.9% pure. Other specialties include water and fluid treatment systems custom designed for particular customers, and instruments used to determine contaminant levels in particular fluids. Osmonics’ products and services make an important and positive contribution to water quality problems.

Peerless Manufacturing Co. (NASDAQ: PMFG) engineers and sells specialized environmental control systems and filters. Its Selective Catalytic Reduction (SCR) Systems perform an important function in air pollution control by converting nitrogen oxide emissions from burning hydrocarbon fuels like coal, gasoline, natural gas and oil to harmless nitrogen and water vapor.

Vivendi Environment (NYSE: VE) is the home of U.S. Filter, an old Invest/O friend and favorite. Through U.S. Filter, Vivendi Environment is a leading producer of water and wastewater treatment equipment in the U.S. and abroad. It also builds and runs different kinds of treatment plants for industrial and municipal purposes. Another of VE’s businesses is Culligan, which provides bottled water and treatment systems to retail customers. VE is also involved in waste management and transportation.

Investing in pollution control companies is an important part of what we do and can be done in a variety of ways. Like any kind of investing, it requires careful research and timing. Opportunities exist to create a much-needed attitude and market based shift to workable solutions that confront environmental challenges. Congress is currently working on energy related legislation, consider letting them know you want clean energy now, not later.

Adam J. Coppock