How to play Congress' environmental policymaking

Despite a seemingly unanimous support for environmental matters from the Democratic party, there are still divisions inside the party on how to go forward. According to a Wall Street Journal article [subscription required], the sharpest inter-party divisions exist on the issue of fuel-economy standards.

Interestingly, it seems like everyone in the party agrees fuel-economy standards need to be increased, the issue is when and how fast. Automakers, especially U.S.-based, would stand to suffer if fuel-economy standards are quickly increased for obvious reasons such as making it more costly to produce cars -- a factor that American automakers would probably prefer not to deal with in their current situations.

Fuel-economy standards are certainly not the only issue at hand. Last week, House speaker Nancy Pelosi agreed to mandating utilities to begin using more renewable fuels. And like I covered in this post, I think the ethanol mandate is going to be increased in the next environmental bill.

All this being said, I think the most interesting way to play the environmental boom in America is through a basket of stocks. One specific stock I like for the environmental bill is Pacific Ethanol Inc (NASDAQ: PEIX), a thesis I covered here.

If you don't have time to do research on all the different companies in this interesting sector, I really like the Powershares Clean Energy ETF (AMEX: PBW). This is basically an index of clean companies which serves to reduce the risks in entering this volatile and speculative sector. Although the expense ratio is rather high at .60%, it's the best option for investors not willing to spend too much time on this sector.