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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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Why Everyone Is Wrong About Biden’s $600 Billion Climate Bill

  • It looks like Senator Joe Manchin will stand firm in his stance against the climate change provisions in Biden’s infrastructure bill
  • When it comes to the climate bill it looks like there are no winners here, with both Manchin and Biden failing to secure anything concrete from negotiations 
  • Ultimately, the bill is unlikely to have a significant impact on a transition that is clearly underway already within the United States

Listen carefully and you will hear the gnashing teeth of environmental activists and the corks popping in the offices of fossil fuel lobbyists. Why? It looks as if Senator Joe Manchin (D-WV) deep-sixed all the climate change provisions of President Biden’s proposed infrastructure bill. We think both groups have it wrong. Here’s why.

First, let’s start with the relative insignificance of the bill’s proposals. It intends to spend roughly $600 billion over ten years to clean up the US electricity systems, improve electric efficiency, and provide tax credits for renewable energy, clean air, and water. This is modest in the context of annual US sales of natural gas and electricity of $400-500 billion per year and the needed expenditures to decarbonize electricity and gas distribution of $4-5 trillion (also spent over decades). We have previously established that our existing electric utility industry can finance the whole decarbonization project without financial help from the government. Naturally, no corporation refuses a government handout but that is another matter. So, the Biden bill’s provisions to us were more of a minor accelerant to domestic decarbonization efforts rather than a necessary prerequisite.

Next, to Senator Joe Manchin’s strategy. Not long ago, we recall reading that Mr. Manchin said he wanted to bring new, clean industry jobs to West Virginia to replace declining coal jobs. So we expected him to use his political leverage to bring in billions of dollars worth of new industry (carbon capture, windmills, whatever) as a price for his support of the Biden bill. Instead, he appears to have killed the bill’s climate provisions. Of course, this could be a bargaining ploy. In which case, at the last minute, Senator Manchin may ultimately vote for the provisions in return for the federal government’s commitment to invest billions in West Virginia. That would be a rational ending to this recent drama, especially since Mr. Manchin cannot halt the inevitable decline of coal mining. No one is building new coal-fired power generating plants in the US and the existing plants are old and getting older. Senator Manchin’s opposition to this bill won’t save coal but it will give the electric industry license to do what it wants — to replace large, baseload coal-fired power generating stations with large, baseload natural gas-fired power generating stations. And more to the point, this will leave West Virginia poorer, without its long-term coal employment, and without federal aid to replace those lost jobs.

Finally, we believe those in the energy industry celebrating the demise of the environmental remediation provisions of the infrastructure bill meaningfully underestimate pressure on large energy consumers to cut carbon consumption. In addition, there is also considerable coercive power in the hands of state and federal utility regulators, investors, and securities regulators.

The idea that electrification of various economic sectors will help attenuate global CO2 emissions seems pretty much settled as an issue. The global automobile industry has conceded and since these large manufacturers use worldwide platforms for their products, when they commit to electrification they in effect do so for all their markets. Similarly in the area of overseas transport and cargo vessels, big freight transporters have demanded that the shipping industry decarbonize, and the major question seems to be what propellant to use—sails, green hydrogen, or something else. And we expect more of this. On the financial front, we expect activist investors to challenge corporate energy risk management policies, as well as putting pressure on major institutional investors to “do the right thing”. One potentially explosive wild card in all this is litigation regarding corporate denials of a connection between energy usage and CO2 emissions despite clear research to the contrary. Large corporations lying to the public about the harm their products cause sounds a lot like the litigation with the US tobacco industry resulting in a huge financial settlement. We’re not sure whether this risk is fully appreciated. 

In short, in the immortal words of Yogi Berra, “It ain’t over till it’s over.”

By Leonard Hyman and William Tilles for Oilprice.com

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Leave a comment
  • john tucker on October 25 2021 said:
    It is not possible to fully decarbonize electricity generation in ten years. Fortunately, its not really needed either. Efforts to throttle the supply of gas through various fracking restrictions and pipeline restrictions, are the primary force driving up the costs of natural gas and having the result of making residential gas, electricity, and food all much more expensive. This is hurting the poor tremendously. Perhaps sometime in the next few years, more people will come to their senses and stop this madness......
  • Bill Snyder on October 25 2021 said:
    The Author completely forgot about West Virginias other energy product, Natural Gas from the Marcelllus, of which WV is a large producer, and it associated jobs from pipelines. Manchin also has to take those into account. Second, WV will not bite off on wasteful green tech like windmills and solar cells. They are a time limited technology, and need replaced every so often, and degrade rapidly over time. This is green energys dirty little secret they dont want out. WV and its Republican base wont fall for it, and Manchin knows that.
  • Steve Walser on October 25 2021 said:
    The only fly in the ointment being slathered over the sore muscles powering this march towards a, supposedly, no carbon future is that no one has yet figured out how to generate the vast baseload power, at reasonable cost, that is needed for the world to continue to lift the poor out of poverty and keeps the middle class maintained. Particularly since the enviros hate nuclear and fusion is still a dream there is no ready solution in sight. The real race is between the blinders coming off the public as they realize they have been lied to about the malign effects of CO2 and the development of technology to avoid carbon release. People, by and large, will refuse to see their standard of living lowered significantly to stop co2 so the world will keep emitting vast amounts. Give us another 20 years or so of increasing CO2 and no real change in global climate and it just might become difficult to maintain the charade that we are under "existential threat".

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