U.S. House of Representatives Passes Climate Change Bill

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Hey here’s a question to start your Tuesday off with. If Bernie Madoff gets 150 years in prison for running a Ponzi scheme, what do you think the people who designed Social Security and the Superannuation scheme ought to get?

And speaking of colossally stupid government programs, you may have seen the news that the U.S. House of Representatives passed a climate change bill on Saturday by a narrow vote of 219-212. The cap-and-trade bill, otherwise known as Waxman-Markey (for the nominal writers of the bill) mandates that U.S. manufacturers and utilities reduce carbon emissions 17% from 2005 levels by 2020 and 83% by 2050.

Under the sausage making process that is the American Congress, the bill was filled with compromises. Congressmen from coal-producing states or states with lots of manufacturing jobs had to be bribed into supporting it through various means. It must now go the Senate, which must pass its own version of the bill.

If the Senate bill is different than the House bill (and it almost always is, given the different agendas in both bodies and the need for more bribes), the two bills go to “reconciliation.” That’s where a committee made of members from both houses settles on a final compromise version of the two bills and sends them back to their respective bodies to be voted on. Then it gets sent to the President to become the law of the land.

By the way you may have missed an amendment to the bill that’s stirred a bit of controversy. It was inserted the night before among the bill’s 1,200 pages, which you can be sure none of America’s elected officials actually read. The amendment placates Congressmen from Rust Belt states who worry about losing even more manufacturing jobs to the developing world (China). It requires the U.S. President to make a “border adjustment” on goods from countries that do not cap or reduce carbon emissions by 2020. It’s a tariff.

Already President Obama has backed off that particular amendment. He says, “At a time when the economy worldwide is still deep in recession and we’ve seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there.” Very careful, sure. But you already did send the signal didn’t you?

For what it’s worth, we think this was all an exercise in political window dressing to get some version of a bill passed. If the Senate and the House actually agree on a climate change bill that puts a high tax on carbon, then the apotheosis of Obama will be complete.

We will take The One at his word, though. Besides, as everyone knows, the real purpose of the bill is not to start a trade war (although it may do so). The purpose is to make conventional energy more expensive AND-in an era of declining government tax receipts and rising liabilities-to create a huge new source of government revenues by taxing carbon. It’s a revenue and power grab by an institution (the Nation state) that finds itself increasingly off-balance.

It’s also a massive project in socioeconomic engineering that ignores the reality (and physics) of energy generation in an industrial society. It’s true the world could benefit from cleaner and cheaper energy. But cleaner and more expensive energy is a recipe for economic suicide. It’s something Western nations seem particularly keen on committing, although we can’t really figure out why. It could be that the global Left simply finds modern life aesthetically ugly and consumerism (with all that pesky individual choice) a vulgarity that should be destroyed via legislation.

But speaking strictly in economic terms, unless a region or a country has ample hydroelectric or geothermal resources, it’s impossible to meet base load electricity needs reliably with renewable energy. Advocates envision a world full of ultra-long life batteries, windmills, and solar farms. But it’s just a fantasy. If the climate bills become law in Australia and America, it will accelerate the deindustrialising of Western economies and mean the transfer of even more manufacturing jobs to the developing world.

Of course maybe that’s just what the architects of these laws want. Who knows? We know they want to tax productive enterprise and make the bulk of the population dependent on government handouts. That makes people compliant and easily controllable. That is big government Utopia. Advancing the fears of climate change is the easiest way to get more control.

Politics aside, there is an investment angle to this, which we’ve been developing at Diggers and Drillers and which Kris Sayce has been profiting from at the Australian Small Cap Investigator. It’s natural gas and liquid natural gas (LNG).

In short, we’d expect to see the construction of a lot more natural gas fired power plants in the coming years in the West (although they are more expensive than coal-fired plants). All those re-chargeable plug-in hybrids have to get their electrons from somewhere. If it’s not going to be coal (which will be taxed out of existence), it’s probably going to be cleaner-burning natural gas power plants, powered by both conventional and unconventional gas.

Right now, global LNG capacity is rising and stockpiles are fairly high. But if you keep your eye on the big picture and we see a transition of the world’s power plant fleet from coal to natural gas, it obviously favours gas producers and explorers. Australia is moving ahead by leaps and bounds in this area with conventional off-shore production in the North West Shelf and Timor Sea and more unconventional production (hopefully) from coal-seam-gas in Queensland.

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. Love your work Dan. You say, “Advancing the fears of climate change is the easiest way to get more control.” Could work the other way also. From where I sit in the environmental field, more and more people are becoming nearly self sufficient and hence working very hard and fast to not be dependent on government very much at all. Agree alternate energy will not meet base loads as they are at present. Nothing to stop load sharing in the future and higher pricing to get people to become more organised and efficient with energy use.

    Also in the years to come when the electricity, water and petrol is priced out of the reach of the average Joe,(even without a carbon tax) and no prospect of increased wages, demand should fall as Governments will be too broke to top up social security. Makes becoming self sufficient more urgent. We all have to eat but can survive in a depression when growing our own food, having a wood stove etc. Who is going to have the money to buy those goods from the developing world if the world economy goes to hell in a handbasket?

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  2. Hi Dan.

    Concerning Madoff, the process is too quick and clean cut for me not to smell more rats. I have investigated large frauds (though not this large) over the years and would lay odds that a lot of the money is somewhere. The fact that there is no (current) evidence of securities investments does not mean that a lot of funds were not invested. Indeed if you doubled or tripled the Madoff family’s net worth (to get a pre crash guestimate) you may find that there was much more collateral here than many other investment vehicles. All that went wrong was the global financial meltdown. Also, I can’t for the life of me understand why any sane individual (of government institution) would bother to argue over a 20+ year sentence length given the fact that Mr Madoff is now in his 70’s. Who cares and in any case revenge should never be part of the equation.

    Concerning climate change bills and investment spin offs I would bundle certain rare earths and uranium in with LNG.

    Coffee Addict
    June 30, 2009
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  3. Unconventional Gas!? Is that something we can tap from Canberra? Or Washington as the case may be.

    Actually, I agree with the article. The whole carbon trading thing smells suspiciously like some banker sponsored credit expansion to me.

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  4. I think Nuclear Power has been missed here. Nobody (except Australia perhaps) thinks clean coal is the 21st century solution to providing cleaning energy. Even the Swedes are embracing Nuclear Power again.

    It is no coincidence probably that the world leader in hybrid car technology (Japan) is also a world leader in Nuclear power technology.

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  5. T-H-O-R-I-U-M (to the music of that old Van Morrison classic, ‘Gloria’) Greg. Clean(er) nuclear power… . Do they have that at your local Karaoke Bar?

    Biker Pete
    July 1, 2009
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  6. Actually it works better to the Kinks song “Victoria”. Try it and you be the judge :) 55 reactors here and still going strong, earthquakes and all. (had a wee tremor just the other night actually)

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  7. I have a wee tremor most nights, Greg! :) Yes, it works… and that’s my era, too… hammering out sixties stuff at age sixteen, at Canterbury Court, with the crowd throwing (thick) glass coke bottles at the stage when we ran out of songs!! (Only happened once. We learned twenty more in a hurry… .) I’m not sold on uranium, yet. To me thorium has many more pluses… and far less downside. I’d bet my left tentacle that Obama pursues that safer option, as will China. I’ve little doubt that China’s active pursuit of thorium suppliers has awakened US interest… . May pick up some THPW… .

    Biker Pete
    July 1, 2009
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  8. I’d encourage the skeptics over the man-made climate change to think of the sky in Beijing.
    The current consumption of dirty, noxious energy reminds me of human smoking habit.

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  9. From my understanding thorium still requires good old U235 to get it up and going that is change it to the fissionable uranium 233 isotope – the best analogy that I have heard is that uranium 235 is the kindling whilst U238 and thorium are the wood. Once fast breeder technology comes of age then things get really interesting, I think the fuel supply then goes into the hundreds of thousands of years if not more.

    With respect to the U235 supply, if all else fails you can cop the USD 250/lb price tag and extract it from sea water – I think there is ten thousand odd years in that source on 235 alone and as you know the cost of electricty from nukes is not effected as badly from uranium price as coal fired power stations are from coal.

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  10. @Don, have a look at Silex (SLX) with it’s laser technology for enrichment. Still speculative but the heavy weights are in with cash for the trials. To countervail it investment wise though I think the acquisition of the inefficient old BP Solar plant at Homebush will prove a dud and that diversity into solar production has much risk.

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  11. I think Dan misses a critical idea here; People aim to put off paying for things as long as (or altogether if) possible. Pollution has a cost (quite a large one) and someone needs to pay for it. The ETS aims to make polluters pay for the CO2 they create, if they don’t pay for it someone else will eventually need to (through various forms of climate change).

    Furthermore, consumers need to pay for the real costs of things. Dan goes ad-nauseum about how stimulus in one area creates a bubble in that area and I agree, but surely allowing people not to pass on the full cost of production is the same thing.

    Dan and Bill on this topic seem conflicted and confused, when Banks, Autos and Property are propped up they scream blue murder, but when it comes to taking away the hidden stimulus from Energy producers, they yell again. It doesn’t make any sense.

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  12. Arguments like base-load power issues are often wheeled out in the green energy debate. Unfortunately sometimes by people like Dan who don’t have an in depth understanding of the electicity industry.
    Base load represents a minimum amount of power that must be provided.
    The more independent generators that are constructed and operational, the more reliable the power they provide. Once enough renewable generation is in place, base load will be met anyway. There is no issue.
    And There is no reason that renewable power must provide full base-load from day 1.

    Variability in power supply and demand has always been there and it has been solved successfully for many decades.

    Some countries generate the majority of their electricity through renewable sources such as hydro which isn’t expensive or unreliable. In fact they are more reliable over the long term because they don’t have risk of fuel costs rising in future.

    After typing this I found an online article that explains this much better. I don’t know this guy, but he understands electricity supply.
    http://www.cana.net.au/documents/Diesendorf_TheBaseLoadFallacy_FS16.pdf
    I am not affiliated with this site.

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  13. We in the West raped and pillaged our environment for centuries (and longer) to get a better standard of living. Now we reckon developing nations shouldn’t get their turn. Especially not if it affects our economies by them getting an advantage over us regarding being able to manufacture cheaper than us – That was Mr Bush’s line anyway. Yet at the same time the West has been real happy to consume lots – especially if the nasty industries that produce the goodies weren’t at home. And we’ve got the likes of Oz saying that counting emissions from bush fires is not fair – When there seems to be a pretty reasonable argument that if we got our act together regarding controlled burn offs we wouldn’t have the really bad ones we do. And Putin in Russia has gone from being anti climate legislation (what Russian would really care if the global temperature went up a few degrees?) to being pro – But Russia has spare credits it can flog for billions elsewhere. It is a tax driven initiative with vested interest groups hanging to it like leaches from all over the globe. So yeh, pardon me, but I’m a bit cynical about it too. Albeit for slightly different reasons to DR maybe. But as DR says, it just could be making for some really interesting investment possibilities – Ta DR.

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  14. To fuel the nuclear discussion:
    http://au.biz.yahoo.com/090701/33/276yk.html
    A lot of nuclear projects hit these issues.

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  15. Interesting item, Richo. Can’t imagine the same obstacles in China!! Riding thru’ Europe in 2005, we were surprised how visually the energy scene presented in the landscape. Immense wind generators threw a throbbing strobelight right across some parts of Holland; massive nuclear cooling towers spewed condensate visible like twin tornadoes from thirty kilometres in France; whole townships in Germany reflected light from solar panels, as we rode thru’ mountain passes. Consideration of the aesthetic alone has already killed some energy projects in WA.

    Biker Pete
    July 2, 2009
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  16. This could and would help innovation. Once western countries implement cap and trade one more legislation would ban all imports from countries not following procedures to combat green house gas emissions. It would force developing world to adopt cap and trade really fast else risk losing all income from exports.
    Higher cost of energy would drive innovation faster for more energy efficient life. Automobiles of the 21st century are a case in point and USA and even Australia are just waking up to the 21st century.

    Dinakarananda
    July 2, 2009
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  17. Interesting article Richo however why did it have to always refer to computer modelling and fuzzy graphs which it had adobe photoed from other reports? Surely there are countries who have enough installed wind capacity – like Denmark mentioned later in the report – to put flesh on the bones of their assertions? Forgive me but I am an engineer and that is what we deal with- what “should” be happening according to the model/study/brochure/prospectus and what is actually happening can be two completely different things.

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  18. Don,
    I don’t think that low quality of two graphs is a compelling reason to discredit the report. (It looks to me as it they were hand drawn, and enlarged too much). I have seen ones like them in textbooks – bread and butter stuff for power system engineers.

    The electricity system of a country is influenced by geography, population centres, generator locations, industry locations, interconnections within the country and to neighbours. Denmark is very different to Australia.
    I’m sure many findings from Denmark apply to Australia, but the author has wisely chosen to resist the temption of drawing too close a parallel.

    IMO the disparity between what could be happening and what is happening is more a factor of politics, and turning around a very big ship, than technical constraints.

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  19. Dinakarananda – you took the words right out of my mouth. Anyway, any type of pollution should be discouraged (car exhaust causes more lung damage than smoking in some cities). Innovation to improve energy production and transportation efficiency and resulting in less pollution sounds like a growth industry to me.

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  20. I respectfully disagree with you there Richo. I have worked on a few plants in my field which “should have” worked and for want of a few technical details,oversights or miscalculations never had a chance. No amount of meetings or company politics were going to make any difference to the outcome.

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  21. Dan D: It was great to see an energy related rare materials pick in D&D! Looks like the stock will get a speeding ticket by c.o.b so I’ll wait a week or three before establishing a small position. Maybe I’ll apply a tax refund to it at some stage.

    Like you I don’t know whick emerging vehicle propulsion technology will win out in the long run. My gut feel is that there will be several winners. Over time, all companies in the post oil materials, energy and technology game will move upwards, downwards and sideways with the view to enhancing strategic positions. There will be take overs and mergers and then there is the little problem of a credit depression to get around before 1000% profits have any chance of being realised. Some will go bust while others will grow like Microsoft did in the 80’s and 90’s.

    Anyway, its a facinating investment area for interested punters to do a bit of their own research.

    Cheers.

    Coffee Addict
    July 6, 2009
    Reply

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