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5 energy bill winners
The new law won't cut rising oil demand or reduce the nation's reliance on foreign sources. But it'll juice sales for many companies and could boost their stocks.
By Jim Jubak
Today I'm going to give you five stock winners from the energy bill signed by President Bush on Monday: Peabody Energy (BTU, news, msgs), Deere (DE, news, msgs), Chicago Bridge & Iron (CBI, news, msgs), TransCanada (TRP, news, msgs) and Buckeye Partners (BPL, news, msgs).
You'll notice that there's only one "pure" energy producer on the list. That's because as an energy bill, the current legislation is a sham. But it's not as bad as a farm-subsidy bill, a construction-industry jobs bill or a pipeline-company guarantee bill. So four of my five winners come from those sectors.
Let's start by looking at what the energy bill doesn't do.
It doesn't do anything to cut U.S. oil consumption. According to the American Council for an Energy Efficient Economy, the final bill that was hammered out between the House and Senate would see U.S. oil demand rise from 20.5 million barrels a day today to 26 million barrels a day by 2020. Several provisions that would've kept consumption to 25 million barrels a day by 2020 died in the joint conference.
Getting more miles per gallon is the fastest way to get a big reduction in oil use. But Congress, by a big margin, rejected attempts to significantly raise automobile fuel-efficiency standards.
A widening gap
The bill doesn't do much to cut U.S. reliance on imported oil and gas. Yes, there are tax breaks and subsidies galore for domestic oil and gas production. But absent some reduction in the growth of consumption, the gap between what we pump out of the ground from aging oil and gas fields and what we consume will just get wider. Last year, 58% of the oil consumed in the United States had to be imported, up from 34% in 1973. The U.S. Energy Information Administration estimates that by 2025, the U.S. will import 68% of its oil.
The situation is only marginally better for natural gas. The United States is becoming more dependent on imports of liquefied natural gas: LNG is projected, again by the Energy Information Administration, to account for 21% of our natural gas supply by 2025.
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The bill does nothing to tax carbon emissions. This amounts to a huge subsidy to oil, gas and coal-based energy production, since power plants and vehicles burning those fuels can dispose of much of their waste for free by putting it into the air. (Yes, some specific pollutants are regulated, but carbon emissions aren't.)
The big losers here are nuclear power and alternative technologies such as solar and wind. Nuclear gets slammed especially hard because the government taxes nuclear plants to pay for waste disposal.
Clean coal?
Congress rejected a carbon tax despite arguments that this was the best way to reduce U.S. contributions to global warming and that it would lead to a free market in the trading of carbon pollution "rights." Instead, Congress created a bucket of subsidies for nuclear and alternative technologies. Then, in typical congressional fashion, it added subsidies for "clean coal" technologies. (A provision to require that 10% of our electricity comes from alternative sources by 2020 appeared to die in committee.)
The subsidies and regulatory changes the bill does throw at nuclear power aren't enough to offset the bias toward fossil fuels.
I have my doubts about the wisdom of building more nuclear power plants when we've done so little to secure the ones we have against terrorist attack. And we still haven't solved the problem of how to secure the nuclear waste these plants produce. But I understand the current attraction of nuclear power.
The United States sits on large domestic deposits of uranium, so nuclear power is a domestic replacement for foreign oil. Nuclear power doesn't add carbon dioxide to the atmosphere, a plus for anyone worried about global warming. And once a nuclear-power plant is up and running, it produces cheap electricity -- about 1.7 cents per kilowatt hour vs. 1.8 cents for coal and 5.7 cents for gas.
But the big costs for nuclear power are in plant construction and waste disposal. Add those and nuclear power costs 6.5 cents per kilowatt hour vs. 5 cents for coal. The bill attempts to fill some of that gap with loan guarantees for nuclear-plant construction and rules to speed construction. But, absent a carbon tax, nuclear isn't competitive with coal. That's certainly a problem if Congress really intends to get utilities investing in a new generation of nuclear-power plants, since claims of improved safety haven't yet been tested in real-world operations.
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