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First, a Hearty “Congratulations!”

Filed under: Energy, Commodities, General — Patrick Reames | November 5, 2008 @ 5:52 pm (Views: 201)

The election of Barack Obama as the 44th President of the US is clearly a historic achievement and one well deserved as he certainly ran the better campaign.

However, unless you are invested in a favored alternative energy technology like wind or solar, Obama’s election does not bode well for the energy industry. He has not been shy about voicing his views and stating his proposals to “reshape” America’s energy future. Unfortunately, the plans that he’s proposed, if fully enacted, would most likely destroy any hope that America could economically transition to that future.

Amongst his priorities are a return of the windfall profits tax (which will lead to significantly reduced oil production in the US), reinstating the moratorium on offshore drilling, and enacting the most aggressive cap and trade program in the world that would, in his estimation, bankrupt coal-fired generators, not to mention potentially create hyper-inflation as the “skyrocketing” cost of energy ripples throughout the economy, impacting everything from bread to bulldozers. And, despite his push to kill coal as our primary source for electric power, he’s also stated that he’s not a fan of nuclear power and wouldn’t support its expanded use unless new technology can addresses “safety and environmental concerns”.

Should he have the political support in congress to enact his agenda (which, without a constituent uprising, he does), the “old” energy industry in the US is going to suffer greatly. However, the real impact will be on the average citizen who has just recently started to see relief from record gasoline prices. In a couple of years, we are very likely to be nostalgic for the good ol’ days of the summer of 2008.

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3 Comments

Comment by steunenber:
November 6, 2008 @ 2:04 pm
Well, Patrick,

I would not worry that much about Obama. The european Cap & Trade has been very profitable for european utilities. It even does not prevent the german energy sector from planning many new coal powered plants.

The transition to alternative energies will most presumably change the electricity trading world. (And don’t forget that pushing renewables will reduce the market price of CO2 certificates. One of the reasons that I’m against C&T-programs, whilst you don’t need to worry)

Both will create lots of work for seasoned ETRM professionals.

As for the ‘real impact’: If we believe in the market as a regulating instrument, the price is the lever for change. Of course people like Peter Barnes did propose ways of alleviating the impact.

In a way, change happens always. Without change we would come to some equilibrium, meaning very small profits. And the energy industry surely can cope with change.

So, yes, congratulations.
Comment by Patrick Reames:
November 6, 2008 @ 3:13 pm
Johan,

I think the first phase of the European C&T experience had a two characteristics that lead to huge profits for their energy companies:

1) Certificates were primarily awarded to GHG producers, which allowed them to pass on costs without having actually incurred those costs, and
2) Certificates were, in many cases, overallocated, meaning little GHG reduction investment was required to meet targets

Obama on the other hand has stated he wants a 100% auction of certificates and he wants the reduction goals to be so stringent that they will “bankrupt” anyone trying to build a coal fired generator. As the US get about 50% of our power from “traditional” coal facilities, the costs to reduce the GHG emissions from those facilities, or to replace that capacity, in the next 30 years, much less the next 10, would be staggering.

You can hear Obama himself talking about it here…
http://www.youtube.com/watch?v=SMwBbl6RoIs

I don’t want to be a pessimist here, but…
Comment by steunenber:
November 7, 2008 @ 3:28 am
Hi Patrick,

what are you pessimistic about? I can understand quite a lot of irritation when you don’t share the underlying assumption. But what exactly is your concern?

Cheers,
Johan

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First, a Hearty “Congratulations!”

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