ETFs: Coal vs. Natural Gas

NEW YORK (TheStreet) -- The debate is heating up in Congress over the final shape of legislation aimed at reducing global warming. The outcome will have important repercussions for the coal and natural gas industries, and energy-focused ETF investors need to pay close attention to what's going on.

Investors can't buy a coal ETF that directly invests in coal, but they can buy an ETF that holds natural gas futures. Unfortunately, even with a recent 12% rally, United States Natural Gas(UNG Quote) still deserves "the widow-maker" nickname that it picked up during its long, drawn-out decline to sub-$10 levels.

However, it is possible to compare Market Vectors Coal(KOL Quote) and First Trust ISE-Revere Natural Gas(FCG Quote), the two heavyweight ETFs in this space.

KOL has had a distinct advantage this year, with a 96% return vs. the 30% return for FCG. One factor helping coal has been the climate-change legislation that passed the House of Representatives in June, but now the Senate is working on its own bill, and the legislation could change.

Natural gas emits less CO2, making it more popular with environmentalists, but coal prices have been more stable over time, making it more popular with utilities. Some environmentalists point out that new solutions for coal emissions will make it cleaner in the long run, though natural gas is a cleaner fuel in terms of extraction. However, none of these facts matters in the end.

The reality is that 535 legislators in Washington with questionable scientific knowledge -- Nancy Pelosi did say, "I believe in natural gas as a clean, cheap alternative to fossil fuels," on "Meet the Press" last year, twice -- and limited math skills are going to decide which fuels win out. Just as the government allowed Lehman Brothers and Bear Stearns to fail, but bailed out AIG(AIG Quote), Citigroup(C Quote), Bank of America(BAC Quote) and Goldman Sachs(GS Quote), it will decide which fuel wins.