Weekly Wreck

Are You Ready for the New War on Carbon?


By: Kevin McManus

With the likely coming change in administration it is a safe bet that enormous change is coming to the regulatory and tax framework at the state and federal levels for both the producers and users of carbon-based energy and carbon producing products. Petroleum and natural gas companies along with what is left of the coal industry can all expect increasingly burdensome regulations and taxes. Additionally, car companies (with the exception of all-electric ones like Tesla), cruise lines, shipping companies (both land and sea) and other high impact users of carbon based energy will also likely find themselves in the cross hairs of the progressive regulatory and tax machine.

Specifically, the Biden plan states that he will:

Ensure the U.S. achieves a 100% clean energy economy and reaches net-zero emissions no later than 2050. On day one, Biden will sign a series of new executive orders with unprecedented reach that go well beyond the Obama-Biden Administration platform and put us on the right track. And, he will demand that Congress enacts legislation in the first year of his presidency that: 1) establishes an enforcement mechanism that includes milestone targets no later than the end of his first term in 2025…[1]

Obviously, these are aggressive goals for which any significant attempt to implement would result in major changes in the current energy economy as well as significant costs to both companies and consumers.

It is important to remember that a goal of net-zero emissions is not going to include natural gas in most cases or even plug-in hybrids. Only non-carbon emission electric and possibly non-carbon generating hydrogen, so forget hydrogen sourced from natural gas, it will not work in a net zero world. Nuclear is, as always, an open question and probably 10 or 20 years away at best.

You shouldn’t take much comfort in the Senate’s ability to stop any of this either since much of it would represent a return to a regulatory scheme already in place at both the state and federal levels. Even the Senate is going to have think long and hard about saying “no” to additional carbon taxes with $30 trillion or more in debt on the books.  It’s not too hard to envision gas prices of $10 to $20 a gallon in the not too distant future, which would also, from a progressive point of view, help get people back out of their cars and onto buses and trains.

The real risk to the investment community however is that it will be blamed if these aggressive goals are not met. For example, already we see complaints, and in our opinion legitimate complaints, about how much compensation oil and carbon firm CEOs are making in what is at this point probably a declining industry or possible even a collapsing one.

Bottom line – now is probably not the time to go easy on fossil fuel firms or old-line auto companies when it comes to executive compensation and asking the hard questions about the long-term viability of their business model.

[1] See “The Biden Plan for a Clean Energy Revolution and Environmental Justice” at www.joebiden.com/climate-plan/.



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