November 19, 2010 at 5:10 pm #2459
LOBBYIST MICHAEL MCKENNA has a word of advice for his clients: If your business depends on federal subsidies for its existence, then you better design a new business model.
McKenna, a Republican, predicts that fiscally conservative Republicans in the next Congress will begin a multiyear process of cutting industry-specific and company-specific tax subsidies as part of their aggressive budget-paring aims. Tree-hugging investors beware: President Obama’s beloved green-energy sector likely will be the first sector to feel the squeeze.
McKenna knows what he’s talking about. He’s a political jack of all trades and does lots of work in the energy industries. He’s a registered lobbyist with clients that include American Electric Power, El Paso , Southern Co., Suez S.A. (SZE.France) and Koch Industries. His company, MWR Strategies, Virginia, also provides public-relations services and political polling. He’s been involved in political campaigns for more than three decades.
The most surprising trend he saw in the recent election was among voters aged 65 and older. In elections past, this cohort split nearly evenly between Democrats and Republicans. This year, the Democrats lost the demographic group by 21 points. If the GOP maintains this double-digit advantage among the oldsters, he says, there’s little chance of Obama being elected in 2012 for a second term.
All energy sectors eventually will see their tax subsidies erased over the next two to five years, predicts McKenna. Green energy projects will get hit first because Congress likely will vacuum up unspent bailout money, which includes funding that had been set aside for green-energy loan guarantees.
Early next year, Congress will have to address the corn-based ethanol program as refinery subsidies end. The debate pits corn growers against environmentalists who have decided that biofuels degrade agricultural land and compromise air quality. McKenna predicts that Congress won’t increase the amount of ethanol in gasoline above the current 10% blend.
Promoters of a green economy have been pressing Congress to legislate a Renewable Energy Standard, or RES, to require utilities to derive a fixed percentage of their power from generators powered by wind, the sun and renewable energy sources. Republicans in Congress will not vote for RES because in essence it’s an energy tax, McKenna says. Utilities would have to hike their rates substantially to make up the cost of building and maintaining these expensive, inefficient sources of power and the new power lines required to tie them into the electrical grid. Instead, each state will have to decide whether or not it wants to require green-energy mandates for its power companies and whether to charge rate payers or utility shareholders to cover the increased cost, McKenna says. Thirty states and the District of Columbia already have adopted RES.
One upside for the industry is that the carbon regulatory agenda is dead, he says. “We could go round and round about how damaging cap and trade was to candidates, but the short answer is that in some places it was toxic, in other places it was bad, and in other places it was toxic,” he wrote to his clients last week. The larger point, McKenna says, is that no politician is going to risk bringing the matter up for debate again.
Cap and trade would have taxed heavy users of coal and oil in their operations, forcing them at some point to transition to cleaner fuels. The Obama administration had projected the approach would raise $600 billion in 10 years, enough money to pay for Obamacare and other big-government initiatives. Critics have claimed the measure would have raised electric rates sharply, increasing costs for business in general and crippling older, coal- and oil-dependent utilities in the Midwest.
The air polluters aren’t out of the woods completely, though. The Environmental Protection Agency is using the old Clean Air Act to declare greenhouse gases a health hazard and imposing very tight rules on smokestack industries. McKenna says the new Congress will try to restrain it.
THE FEDERAL RESERVE on Nov. 16 will release its latest data on industrial production. Investors are expecting an increase for October, based on a strong report from the Institute for Supply Management. However, the ISM numbers might be too cheery. Economists at the Association of American Railroads note in the Nov. 8 edition of Rail Time Indicators that seasonally adjusted rail traffic fell slightly in October. “Based on that, it wouldn’t be surprising if industrial production fell slightly in October too,” the economists wrote.
In the meantime, get out your tax-policy score card: The No. 1 goal of business during the current “lame duck” session of Congress is to get lawmakers to extend both the Bush tax cuts and a number of important business provisions that expired last year, says Dorothy Coleman, vice president of tax and domestic economic policy at the National Association of Manufacturers. The expired provisions include the R&D credit, energy incentives and tax deferrals for active financing. The tax debate begins this week.
November 19, 2010 at 5:12 pm #5397
Here is interesting article on possible fate of subsidy driven Obama Green-Collar energy companies. But you shouldn’t take it litterally given that it comes from a long time republican and energy lobbyist. But it does give both the manufacturing, energy and fossil fuels reason to hope that perhaps help is on the way.
Recent outcome of EPA permits vs Texas / States rights were given blow with Flint Hills Corpus bowing to EPA requirement for individual units/point source requirements instead of current umbrella permits.
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