What Does Global Warming Have to Do with Energy Stocks?

By: Marc Bustin | Wed, Dec 16, 2009
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Over the last couple of years, consideration of the effect of climate change has become increasingly important in analyzing a company or market trend -- particularly in the energy sector. For example, our very bearish view on the thermal coal producers in North America is due exclusively to the high levels of carbon dioxide that coal-fired power plants generate, and the widely held belief that these emissions contribute to global warming.

As researchers who like to chase down facts, we know that credible scientists continue to debate whether and how much humans really do contribute to global warming. However, it's the rare politician who acknowledges this controversy. Instead, they join the herd of scientists and pseudo-scientists who tend to cherry pick among the findings to fit their preconceived conclusions. An unfortunate state of affairs, but, alas, a consequential one, because these same politicians are awfully fond of regulation -- and they're becoming more so.

So it's not surprising that we are on course for a real mess in terms of government regulations concerning carbon emissions, taxes, tariffs, and such. Detrimental results are likely for certain sectors of the economy, such as the oil and coal sectors and associated refiners, heavy industry, and the transportation sector.

As a scientist, I currently accept the near-unequivocal evidence that Earth is in a warming spell, but I also know that in past geological times, there have been many such periods of warming and cooling. I remain on the fence as to what impact anthropogenic (human-sponsored) emissions are having on the global trend. Perhaps more importantly, at some level I am haunted by the belief that even if we are responsible for global warming, we are too late, and there is nothing we can do about it.

Pragmatically, our job at Casey is to point our subscribers toward prudent investments, and it is pretty clear that there is opportunity and danger in industry that is regulated, subsidized, and penalized by government. It's also clear we are just now at the beginning of what will be pronounced government intervention -- for example, the U.S. House of Representatives bill (H.R.2454) aimed at reducing U.S. greenhouse gas emissions 17% from 2005 levels by 2020 and 83% by 2050. The bill allows tariffs on carbon-intensive goods (such as steel, cement, paper, and glass) if they are produced in countries the United States judges to be shirking their responsibility in reducing greenhouse gas emissions.

Herein lies the problem, even if you believe cutting emissions will make a difference: the new big greenhouse gas emitters (i.e., China, whose growing use of coal recently pushed it to the #1 spot in greenhouse emissions, with India rushing to catch up) must curb their emissions... but in doing so, they will be denied the standard of living that in theory those of us who screwed up the atmosphere in the first place enjoy. This is hypocritical, and the hypocrisy is not lost on the developing nations. That's why I think that global accords on emissions are not going to work.

Going forward, I see the impact of climate change regulations - tariffs, taxes on emissions, subsidies, carbon credits, and carbon trading - becoming a major factor in not only the energy sector but also the associated technology sector. And since governments tend to be rather fickle and make decisions that defy logic, our job at Casey Research has gotten that much more titillating.

Every month, we'll bring you analysis of everything that's pulling at the energy sector -- logic-defying governments included --in Casey's Energy Report. With a subscription, you'll also get Casey's Energy Opportunities and, until December 18, a free subscription to Casey's Extraordinary Technology. To top it off, you get all this at 40% off the regular price and with a no-risk 90-day trial. Click here to learn more -- and be sure to do it before or on December 18!



Marc Bustin

Author: Marc Bustin

Dr. Marc Bustin
Senior Research: Unconventional Oil & Gas
Casey Research, LLC.

Dr. Marc Bustin

Dr. Marc Bustin is a professor of petroleum and coal geology in the Dept. of Earth Sciences, University of British Colombia. He has authored over 150 scientific articles on fossil fuels and served as an associate editor for journals like the Canadian Society of Petroleum Geology Bulletin. Marc is an elected Fellow of the Royal Society of Canada and a member of American Association of Petroleum Geologists (AAPG), The Society for Organic Petrology and the Geological Society of America. He has received several awards for excellence in his field including: the A.L. Leverson Memorial Award from the AAPG, the Thiesson Medal from the International Committee for Coal Petrology in 2002 for his contributions to coal sciences/organic petrology and the Sproule Award in 2003 for his contributions to the study of unconventional gas resources.

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