Rather than Reduce Unemployment Cap & Trade May Cause Unemployment to Skyrocket

by Jon Herring

Editor-  In the following article John Herring explains how the current “Cap and Trade” bill might affect the Unemployment rate plus how you might benefit.

In 1964, Lyndon B. Johnson proposed legislation which became known as “The War on Poverty.” Five years later, Richard Nixon, introduced “The War on Drugs.”

And what do we have to show for these brilliant government initiatives, 40 years later? Not much, besides massive expansion of the welfare state and the costly incarceration of millions of people for victimless crimes. These two “wars” have done nothing to reduce poverty or curb the abuse of drugs.

But their effects are minor compared to the next “war” which our government is set to engage. And this is one in which you will be enlisted, whether you like it or not. I’m talking about the “War on Climate Change.”

But as a percentage of income, the greatest burden will fall on low- and middle-income working families. These households spend a much greater proportion of their income on gas to drive to work, groceries and energy to heat and cool their homes.

The conservative Heritage Foundation estimates that the combined cost of this bill will be $3,000 per family in 2012. The Congressional Budget Office estimates a smaller increase of $1,600 a year. But even at that rate, it would represent a 50% increase in the effective income tax of a typical family earning $50,000 a year and paying $3,000 in income tax currently.

As consumers are forced to cut back on spending, there will be fewer new jobs created and even higher unemployment. In fact, the legislators are so aware of the effect this will have on jobs, they have included a provision in the bill to allow for extended unemployment benefits!

So forget any promises about this legislation boosting the economy, increasing our energy independence or creating jobs. It will actually do just the opposite. Given the precarious state of our economy, this is the last thing we need.

It is highly unlikely that the Chinese, Indian and other emerging economies will put the brakes on their own economic growth by placing a tax on energy. And if they don’t it is likely to result in an economic disaster for the United States, as we will not be able to compete. Not to mention that any reductions in greenhouse gases in the U.S. would be offset by increases in other countries, detracting from any potential benefit to the climate.

If this bill passes, you’re going to be paying more for just about everything and economic growth in the U.S. will potentially be crippled. So, how can you benefit?

The big winners from “Cap & Trade” will be renewable sources of energy. Wind and solar are far costlier and less efficient than fossil fuels, but they will benefit from the artificially-leveled playing field. However, these two areas have already received a great deal of attention from investors. I believe there is a greater opportunity in another source of green energy – geothermal power.

Geothermal energy is generated by capturing the heat stored within the earth and turning it into steam which drives power-generating turbines. Geothermal power releases no carbon emissions, it requires no ongoing purchase of fuel and it is a sustainable source of energy that is naturally replenished.

In my opinion the two best plays in this sector are Ormat Technologies (ORA) and Calpine (CPN).

Based in Nevada, Ormat is the largest operator in the geothermal industry. The company designs, develops, builds, owns, and operates geothermal and recovered energy-based power plants. Currently the company is operating 7 facilities in Nevada alone, which are well positioned to serve western markets. I see Ormat as an exceptional long-term play on the growth of geothermal power.

However, Ormat is not a pure play on “Cap and Trade” as the company operates facilities in a number of countries outside the U.S.

A more direct play on “Cap & Trade” legislation is Calpine, based in California. Calpine is the leading producer of geothermal power in the United States, with all of their plants in located in California. But Calpine also operates state of the art natural gas-fired plants in nearly 20 states, including numerous facilities in the South, Southeast and Northeast. Currently these plants compete primarily with coal-fired plants. Coal is a cheaper source of energy than natural gas, but it is also much dirtier. The new legislation would place a very heavy burden on coal, and would likely cause natural gas to become a cheaper source of fuel.

This would be a huge boon to Calpine and a very profitable development for the company’s shareholders.

Besides raising your voice in protest or firing off a few letters, there is very little you can do personally to affect this legislation. But there are some things you can do to profit in case it is adopted. I suggest you invest in companies that produce and enable geothermal energy and which can provide alternatives to coal-fired power. Ormat and Calpine both fit the bill.

To Your Success,

Jon Herring

This investment news is brought to you by Investor’s Daily Edge. Investor’s Daily Edge is a free daily investment newsletter that is delivered by email before the market opens. It’s published by Fourth Avenue Financial, a subsidiary of Early To Rise (http://www.earlytorise.com) (an affiliate company of Agora Publishing). In each weekday issue you’ll receive practical strategies for protecting your portfolio and multiplying your money. You’ll also learn about undiscovered opportunities in emerging sectors and markets, deeply discounted stocks, recommendations for bonds, cash, commodity and real estate investing, and top ETFs. To view archives or subscribe, visit Investor’s Daily Edge. (http://www.InvestorsDailyEdge.com)

 

 

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