06/04/09 Gaithersburg, Maryland The so-called Waxman-Markey bill snaking its way through the greasy halls of Congress looks likes the most expensive thing to hit the economy since the financial crisis began. Even the normally mild-mannered Wall Street Journal called it “one of the most ambitious efforts to re-engineer American social and economic behavior in decades, presenting risks and opportunities for a wide array of businesses from Silicon Valley to the coal fields of the Appalachians.”
First off, the stated objective of cutting carbon emissions by 83% by 2050 will go down in history as outrageous – akin to when Who drummer Keith Moon drove his Lincoln Continental into the pool at the Holiday Inn. I think members of Congress must be smoking the same thing Moon was.
To show you how patently ridiculous such a goal is, I turn to Questar’s CEO – a man with the unfortunate name of Keith Rattie. Questar is an oil and gas company. Rattie is an engineer. He has been in the business since the 1970s. He walks us through the basic math in a speech he made at Utah Valley University on April 2 called “Energy Myths and Realities.” Rattie uses Utah as an example:
“Utah’s carbon footprint today is about 66 million tons per year. Our population is 2.6 million. You divide those two numbers and the average Utahan today has a carbon footprint of about 25 tons per year. An 80% reduction in Utah’s carbon footprint by 2050 implies 66 million tons today to about 13 million tons per year by 2050. If Utah’s population continues to grow at 2% per year, by 2050, there will be about 6 million people living in our state. So 13 million tons divided by 6 million people equals 2.2 tons per person per year.
“Question: When was the last time Utah’s carbon footprint was as low as 2.2 tons per person? Answer: Not since Brigham Young and the Mormon pioneers first entered the Wasatch Valley and declared, ‘This is the place.’”
You can extend this math over the whole country – a growing mass of 300 million people. To meet the Waxman-Markey bill’s goals would mean we have to go back to a carbon footprint about as big as the Pilgrims’ at Plymouth Rock circa 1620.
So I think the bill is absurd. I think it is also a great blow to what is left of American industry. But who cares what I think? As the great Jeffers wrote, “Be angry at the sun for setting/ If these things anger you.” This is the way the world works. Politicians do dumb things. We have to play the ball where it is. And that means we have to figure out who wins and who loses.
Here are some thoughts along those lines…
Agriculture. Agriculture, for whatever reasons, is exempt from the new rules. So farmers don’t have to worry about those manure pools out back or the flatulent cows emitting methane all over God’s green meadows. Those big tractors? Burn up that diesel!
Agriculture is a winner by virtue of not losing, like a hockey team that skates to a tie.
Steel. Big loser. U.S Steel, AK Steel and even foreign steel companies with US operations all get a big kick in the family jewels on this one. Steelmaking emits all kinds of carbon dioxide. The worst-case scenario here is that the US simply won’t be making steel at some point in the future. The plants will all go to Brazil. China is already the biggest steel producer in the world. Now we just handed the country a bunch of new business.
Avoid big steel in the US.
Utilities. Mostly losers. Under the bill, utilities will have to get 12% of their electricity from renewable sources. That means they are going to spend money buying windmills and solar panels. For some of the coal utilities, this is bad news – even though they caught a break when the government made a change to let coal have carbon permits for free to start off with. Gas utilities are better off, as they emit less carbon, but since coal gets some free carbon allowances upfront, their advantage will not be as big as I made out in my letter to you a month ago. (See, the problem with writing about potential legislation is the rules change every week.)
Still, I’d avoid coal producers or coal utilities. They wear big targets on their backs and can’t do much about it, except spend a lot of money. Bad for shareholders. There may be some very good ideas on the picks-and-shovel angle for coal, though. For example, a number of companies will sell equipment to clean up coal. And of course, the solar and wind guys are big winners.
Oil refiners. Losers. This is an industry in which it is hard to make money most of the time as it is. Now, under the new bill, refineries are really screwed. Basically, they are on the hook for about 44% of US carbon emissions. They would be among the biggest buyers of carbon emission allowances. I think with one stroke of the pen, the US government just made the US refining industry that much smaller. Lots of these older refineries will just have to close. US imports for gasoline will rise.
I think the refinery industry already sees the writing on the wall. This is one reason why Valero, the biggest US refinery, has been quick to get into the politically favored ethanol business. It’s also expanding overseas.
Avoid the refineries.
Trading desks. Winners. It figures. As if the government doesn’t help financial firms enough, it is going to hand them a nice tomato in trading carbon credits. The head of Morgan Stanley’s US emission trading desk said: “Carbon, while relatively small, is a critical piece of our commodities offering.” So some financial firms with trading desks in carbon get a nice little payday.
To sum up, this is only the beginning. At the end of the day, this obsession with carbon footprints means that Americans are going to have to pay a lot more for products that use fossil fuels. It means we are going to pay a lot more for energy. Obama and his crew can draw up whatever fantasies they want, but they can’t repeal the laws of economics, which, like forces of nature, win out every time.
Regards,
Chris Mayer
for The Daily Reckoning
Sign Up for The Daily Reckoning e-letter and receive a copy of Bill Bonner's The Trade of The Decade report… at NO CHARGE.
We Value Your Privacy.
Global warming is a fact. Scientific fact. Wheather is man-made or natural, nobody knows. My guess: man-made.
The problem is that it’s already here. Unless one could retrieve carbon from the atmosphere, we are going to see enviromental changes that you can’t dream of at this point. All in the next 20 to 30 years. Virtually NO scientific source disregards the issue as not very serious; the debate concerns only wheather it’s catastrophic or just very serious.
So, making ANY predictions, including economic, for 2050 is a waste of time, to say the least.
I do like Mr Mayer’s writing, though.
The time has past for worrying about reducing global warming. It will happen whether or not we screw each other into the ground over it or not.
Don’t fret. The Four Horsemen of the Apocolypse will saddle up and ride long before we can do anything about reducing as much as a fart in a cattle lot.
This country, as great as it is, will not agree to pay the price required to reduce carbon emmission much less the rest of the world.
By 2100, the most benevolent estimates of sea level rise is about a meter (over 3 ft.). That alone will cause untold death and destruction in this country as New York and most coastal cities are lost and population shifts become unmanageable.
We need to layout plans for survival when things start to pinch, not play stupid idiotic political games that just rape taxpayers to no positive result.
Uh, Gonzo…
Global warming WAS a fact for about 30 years. But for the past 10 years the Earth has been cooling. Substantially.
That’s not to say industries that pollute the environment shouldn’t be called to task for the simple fact that they impact the quality of life for millions – but to market it all as “Battling Global Warming” is stretching the truth just a little.
And the “Carbon Footprint” of the US is but a small piece of the global puzzle. Do you honestly believe that China will put their economy at risk to save the environment?
Who are these Al Gore followers.
We are in the Middle of two Ice Ages. If you want to fear something fear that one. New york City buried miles under the Ice. Indiana buried under the Ice.
Where do people go. The Earth has a uncanny ability to protect itself. When was the last time any of these so called Warming of the World people looked at history of this Planet. If the world had warmed up about 8,000 years ago we would not be here.
We all can argue this for the next 100 or so years as the next Ice age begins to engulf us some time in the future. Does Wyoming explode and a we begin a new Ice Age, some Meteor hit us, volcano in the mediterranean blast off, or one off the coast of Africa. You tell me but I am not losing sleep over any of this or all the possibilities that can happen.
If all the OECD nations cap their emissions and the emerging markets do not, world emissions will rise (not fall)as economic activity shifts even more rapidly to those parts of the world. Their populations are 4 times those of the OECD nations, their industry is far less energy efficient and far more carbon intensive, and they have no intention of capping their emissions and giving up those 6-8 percent growth rates. It is sheer folly (as Mr. Mayer suggests) and amounts only to wealth redistribution without the full participation of the emerging markets.