Is a Carbon Tax a Done Deal for the US?

We know Obamarama is going to tax the rich, but I bet many didn't think he would weasel in the carbon tax as quickly as he is going to now. A Romney win would have been bullish for coal producers in the US – but Romney lost, and now so has coal, at least in the near term. The biggest winner from Obamarama? Natural gas.

Exxon Mobil Corp (XOM) is now supporting Obama in bringing a carbon tax to the US.

Why would Exxon – and other big energy companies – join forces to bring on the carbon tax?

The answer is simple: profits.

Exxon has made significant purchases, buying unconventional North American gas companies. For example, it recent bought Canadian firm Celtic Exploration for over C$2.5 billion. Let's not forget that a couple of years back, Exxon bought out XTO Energy for over US$30 billion.

How much pull does Exxon have in Washington, DC? Exxon has one of the largest lobbying groups on Capitol Hill. And how ironic: Exxon is also one of the largest holdings for all of the US Congress members. Exxon has always had clout in Washington and always will. Exxon is one of the former Rockefeller oil companies... one that has now positioned itself as one of the dominant unconventional North American companies.

How does a carbon tax benefit Exxon? Natural gas and coal race neck-and-neck when it comes to electricity generation in the United States. By increasing the cost to produce coal, natural gas becomes more attractive for utilities. This means a better bottom line for Exxon… and a fatter paycheck for its executives.

But why unconventional natural gas in the United States?

First off, it's hard for a company as large as Exxon to find deposits that will move the needle on its production meter. Unfortunately for Exxon, most of the world-class deposits that it is looking for are in regions where US companies like it have lost their advantage. For example, in Russia and former USSR states, Exxon has to now play by Putin's rules, which could change at any minute.

South America has also proven to be very dangerous for American companies. Chevron has just had US$18 billion worth of assets seized in Argentina. Before that, Chávez in Venezuela taught Shell and Exxon about doing business in Venezuela. Nationalization drives also followed in Bolivia and Ecuador. All this means is that there are fewer places companies like Exxon can go to make a consistent return on an investment without insane political risk.

Obama isn't dumb; he knows that just taxing the rich won't be enough to fill the deficit gap in the United States. A carbon tax would help both financially as well as politically: Obama would look like a hero standing up to the "dirty polluters," as well as bring in another US$100 billion in revenues.

Coal, both metallurgical as well as thermal, is already suffering: metallurgical coal prices are down because of lower demand in Europe and Asia, while thermal coal is down because of pricing pressure from natural gas and the success of shale gas. A carbon tax would be a knockout blow to the thermal-coal industry in the United States.

With the backing of Exxon, expect Obama to not only bring in a carbon tax, but to do it a lot quicker than anyone has expected – and he will be viewed as a hero by many for doing it.

Is your portfolio positioned to benefit from this coming change? It had better be. If not, you can learn how to get it in shape – and also get in on the energy super-bull that's forming.

12 thoughts on “Is a Carbon Tax a Done Deal for the US?

  1. "something that can be run through a pipe, does not need a backhoe or conveyor to move and can be turned off with a valve." How about something that is delivered to America's roofs for free every day and is available at the flip of a switch?
    It's called Solar Electricity and we are falling so far behind the rest of the world in it's development you would think it was Health Care. Germany, Japan, Israel, South Africa, Korea, Malaysia all have a reasonable solar feed-in tariff while we stand around with our thumb up our butt watching international solar capital and investment go to other countries. Are we really so corrupt that we will let an dirty industry crush our international competitiveness with intentionally over-complicated and ineffective solar incentives. Just pay American's $.20 per KWH for 20 years for every solar KWH they deliver to the grid. No production, no payment. What could be simpler? No risky gambles on single companies. Create the right incentive, make it available to everyone and stand back and let the market work. Look at the record, it works. Germany is on track to be running on 80% renewables by 2050. We need a Globally Competitive Feed-in Tariff and we need it NOW.

  2. Factoid alert!

    "US CO2 emissions are now about equal to what they were in 1961."

    The value for CO2 emissions (kt) in United States was 5,461,014 as of 2008. .....over the past 48 years this indicator reached a maximum value of 5,595,358 in 2005 and a minimum value of 2,880,506 in 1961.

    Definition: Carbon dioxide emissions are those stemming from the burning of fossil fuels and the manufacture of cement. They include carbon dioxide produced during consumption of solid, liquid, and gas fuels and gas flaring.

    Source: Carbon Dioxide Information Analysis Center, Environmental Sciences Division, Oak Ridge National Laboratory, Tennessee, United States.

    "People are so ignorant of science and fail to due their research anymore!"

    I couldn't agree more.

    Another prevailing trend is for factual enquiry to be tempered by nationalist sentiment.

    The reason Canada pulled out was not down to the Kyoto Protocol but, in part, due to the Conservative Governments lack of enthusiam for it but mostly as it's emissions were more than 30% above the 1990 target.

    "By formally withdrawing from the treaty now — which any country has the right to do — Canada avoids an explicit finding of noncompliance, which as the University of Alberta environment professor and blogger Andrew Leach points out, is a bit like a student who’s failing a course dropping it before actually pulling an F.

  3. Jeremy, This screed has no discussion of the environmental implications of using Nat Gas vs Thermal Coal. As Will correctly points out Nat Gas reduces pollutants by 33-50% of Coal in the generation of electricity. Several years ago Exxon (XOM) argued for a carbon tax instead of 'cap and trade', which is now screwing up the European market. Maybe science and good sense have arrived (late) in Washington DC. Our coal industry cannot meet price & pollution competition in the U.S. and will survive in Asia as a cheaper electricity fuel in nations short of Nat Gas.

  4. most coal fired plants where we live are carbon sequestered, meaning the carbon is captured and used to push oil out of the ground, plus we need ever increasing amounts of energy to pump oil. there is no way natural gas will replace coal in north dakota.

  5. I can definitely feel for all the families that have generations of coal worker’s blood running through their veins. Hopefully these people can be assisted to retrain now in the push for a cleaner world. Natural gas is it. I am happy to see American companies, such as Exon, be proactive in seeing where this country needs to go, no matter who the president is. Do you think they would not have made those investments had a Republican been elected. What a stupid thought. I think most of you have not researched how much OUR OWN natural gas can do for America and free us from the clutches of the eastern world. Stop thinking left OR the right wing and start thinking about our country. I say bring on natural gas!

  6. Where the heck have all of you been these past few years? In the past 22 years, the US has reduced its CO2 emissions twice as much as the Europeans who actually signed the Kyoto agreement and utilize Cap & Trade. In fact, Canada our green neighbor to the North who actively promoted the Kyoto agreement withdrew from it. US CO2 emissions are now about equal to what they were in 1961. Cap & Trade is a political ploy being used to gain power of corporations. If you want to extend your appreciation for reduced CO2 emissions look to fracking as the source for the reduction. After all the bad mouthing fracking gets from the environmental crowd, the ONLY way to get emissions down is to switch from one fossil fuel to another... coal to natural gas. Wind, solar, etc. don't even scratch the surface in reducing CO2 emissions. People are so ignorant of science and fail to due their research anymore!

  7. I might agree 'godsend' Will, but then we would have to include Israel, Saudi and Iran, wouldn't we?!!

    'A carbon tax would be a knockout blow to the thermal-coal industry in the United States'

    Not necessarily in the west. There plans for five new ports on the west coast to ship coal to Asia....exporting the problem.

  8. Natural Gas is a godsend to our energy needs. Thanks to American innovation this new technique of fracking has given us vast quantities of something that can be run through a pipe, does not need a backhoe or conveyor to move and can be turned off with a valve. While there have been local environmental concerns with the water quality, Nat Gas offers us a fuel whose emisions are 2/3 water. It used to cost $16 per thousand cubic feet, now it hovers around three. In China they are paying $17. We need more LNG tankers.

  9. Hmmm

    So Congress will continue our so called "tax breaks". But turn around and eliminate most of the other middle class tax breaks and through in the "carbon tax on top" This tax unlike profits will trickle straight down onto the consumers. and will therefore in the final analysis help the government to actually increase taxes on the working class. And of course to "appease" the right vitually all benefits going to the poor and middle class will be significantly reduced while simultaneously maintaining all the tax breaks for corporations..................Heads the 1% wins tails the workers lose........

    1. DDearborn... Don't forget it's the 1% who makes jobs available to workers otherwise they would be welfare recipients but maybe that's where it's going?
      Eat well on those food stamps.

    2. Exactly what middle class tax breaks are being eliminated? I haven't heard about or seen any bill that eliminates any middle class tax breaks. Where are you getting your info?

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