How The Obama Climate Change Rules Might Affect ETFs

The Obama administration has unveiled its latest proposal to help curb carbon emissions.

Monday's announcement is taking aim at power-producing plants around the country, with the coal plants taking the brunt of the hit. As states are forced to lower the amount of emissions that are produced, the main focus will be on the high-carbon-emitting coal plants.

Coal

Currently accounting for 41 percent of the worlds electricity and about 40 percent in the U.S., the sweeping changes will undoubtedly lower that figure.

Coal stocks have been preparing for this day -- as the shares of the Market Vectors Coal ETF (NYSE:KOL) are down 10 percent in the last year, and a whopping 60 percent in the last two years. While these changes will not occur overnight, the trend is not in the favor of coal stocks.

Natural Gas

The biggest winner from the new plan may be natural gas stocks. The cleaner-burning fossil fuel emits just half the carbon into the air as coal power plants. As more natural gas is removed from the ground in the U.S., and prices remain low, it will be an option for states to meet the new requirements. The First Trust Natural Gas Index ETF (NYSE:FCG) is up 30 percent in the last year, and is trading a few percentage points from a multi-year high.

Alternative Energy

Both solar and wind power are being touted as another alternative to the coal-burning power plants. With only a very small percentage of the countrys energy coming from green energy sources, there is big upside. However, the economics are not quite there without government subsidies.

The Guggenheim Solar ETF (NYSE:TAN) is up 65 percent in the last year, as investors are taking a flyer on the long-term prospects of solar energy. The First Trust Global Wind Energy ETF (NYSE:FAN) has risen 50 percent over the last year, but is often overlooked when investors consider investing in green energy stocks.

Overall, the Administration's plan is aggressive -- and will have a major affect on the way power is generated in the U.S. in the years ahead. That being said, because it is a plan that will not go into effect for a few years, the trading could be volatile in the related ETFs, as the specifics are hammered out.