Being concerned about global warming, but also an investor and advisor who wants to keep my own and my client’s money relatively safe is fraught with compromises. For instance, a lot of environmentalists probably think that Alcoa (NYSE: AA) is an inappropriate investment, although I like it now that it has fallen from its recent highs.
There are two major environmental objections to Alcoa. First, aluminum is extremely energy intensive to refine, and so has a high embodied energy (although recycled aluminum is much better). Second, like any large mining company, they are responsible for considerable pollution.
Yes, But.
While mining aluminum is damaging, and refining it energy intensive (recycling is much less so), when incorporated in a vehicle, even virgin aluminum causes a dramatic reduction in life-cycle energy use for vehicles due to the reduced weight.
In addition, the energy saved in vehicles is almost all from oil, while the energy in aluminum comes mostly from electricity. While this is a clear benefit to energy security, the global warming impact is less clear. For now, about half of the embodied energy in aluminum comes from coal, but in the future, as we transition to a more sustainable electric grid, the presence of aluminum smelters may actually allow for a higher penetration of wind energy onto the grid. Because peak demand can account for as much as 50% of an aluminum smelter’s electricity bill, already the biggest expense, smelters are accustomed to curtailing their use during peak times. It’s not that big a stretch to carry this practice a little farther, and use the high embodied energy of aluminum as an economic use for electricity at times of excess supply, which may allow a higher penetration of cheap wind into a local electrical grid. Wyoming, it’s time to change your state metal to aluminum.
In fact, some even hope that Aluminum will be fueling your car, as well as forming the structure. I have my doubts.
The environmental damage at Alcoa’s mines has to be weighed against the environmental damage that need not happen when lighter cars make less oil drilling necessary. I don’t know how these balance out, but at least there is something to balance both sides. If the lifecycle energy of aluminum is any guide to the lifecycle environmental damage, we end up with a net positive for the environment..
Green Irony
Neither investing nor environmentalism is as certain or as simple as we’d like it to be. Every time Bill Paul at Energy Tech Stocks has called me a "Pure Green Stockpicker", I winced a little at the irony. I’m far from pure, as are my picks. My Blue Chip Alternative Energy Picks, which this final article in the series was about (and which include Alcoa), are perhaps the biggest compromises of the lot. I guess it just says something about Wall Street that I’m the greenest analyst he’s found, and I own Alcoa.
DISCLOSURE: Tom Konrad and/or his clients have positions in Alcoa.
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