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Cap and Trade or Cripple and Rob?

Written By Brian Hicks

Posted March 27, 2009




As you might have guessed, the proposed “cap and trade” legislation is nothing more than the latest proposed money grab by the fine folks in Washington.

In fact, the data shows Obama’s plan to combat global warming would impose higher energy costs on consumers and businesses while saving us from the ravages of a warm winter’s day.

And while the climate change crowd is certainly convinced in their dire predictions, serious doubts about them still remain—even among scientists. (Cue the hate mail)

Even still, this is one law that has seemingly been placed on the fast track.

Here’s latest story on the new legislation, which I would prefer to call “cripple and rob”.

From Reuters by entitled: US carbon cap to raise power prices-Moody’s

“U.S. electricity prices are likely to rise 15 to 30 percent if a national cap on carbon dioxide emissions is instituted, according to a report by Moody’s Investors Service.

And “the vast majority” of the burden of those higher costs will be borne by residents as large industrial users are likely to be successful in lobbying U.S. lawmakers for special rates and tariffs, the report dated March showed.

If carbon dioxide (CO2) emissions are priced at $20 per metric ton, it would add about $48 billion in costs for the electric utility sector, Moody’s said.

Moody’s said federal carbon legislation is expected in 12 to 18 months, and implementation of any program is still several years ago.

“The conventional wisdom in Washington is that legislation may emerge from the House within the next few months and the critical nitty-gritty details may emerge from the Senate by the end of the summer,” said the report, whose primary author is Jim Hempstead, a Moody’s analyst and senior vice president.

For utilities, the near-term credit impact will be neutral, Moody’s said, mainly because companies will have a chance to adjust financing policies and mitigate risks.

It’s clear, Moody’s said, that operating costs for utilities will rise due to the costs of mitigating for carbon dioxide emissions.

Regulated utilities and public power agencies and cooperatives that will have the right to pass on costs to consumers will be less exposed in the long-term than coal-dependent project financing entities and wholesale merchant generators, Moody’s said.

“The United States generates approximately 6 billion metric tons of carbon dioxide every year, which could result in approximately $120 billion of new annual revenues for the U.S. Treasury, assuming a flat rate of $20 per ton,” Moody’s said.”

By the way, if you enjoyed the tech bubble and the housing bubble, be aware that cap and trade may eventually kick off an even bigger bubble in time—sort of like Enron but on much larger scale.

That’s because a cap-and-trade law would create a market – including derivatives- for carbon emissions and would multiply the trading opportunities for emitters, traders, brokers and investors.

As such, you will be happy to know that among those who want to buy these credits are a collection of investors that aren’t major emitters at all. They include the trading units of Barclay’s Plc (BCS), Goldman Sachs (GS) , JP Morgan Chase & Co (JPM), Merrill Lynch, now a unit of Bank of America (BAC) , and Morgan Stanley (MS).

Gee I wonder why those guys want in on this one?

I guess we haven’t learned our lesson after all.

Have a great weekend.

Related Articles:

Cap and Trade Puts King Coal in the Crosshairs

What Carbon Regulation Means for Energy Investors

Cashing in on Cap and Trade: A Nuclear Power Surge

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