Shorting Oil, Hedging Tesla

[TheTalkingMule]

I've been wondering how sincere these calls for a carbon tax from these figures in the fossil fuel industry really are. It certainly doesn't seem aligned with their interests, which makes me suspicious that it's just PR designed to limit backlash against them as the public becomes more aware of how damaging their business has been and continues to be, not to mention the lengths to which they've gone to obfuscate the truth about climate change. But maybe there are real incentives for these companies to be calling for such a tax that I haven't considered?

CEOs are concerned with their bonus.......period. That bonus is tied to performance 3 quarters out at most. We need to leverage that shortsightedness to help implement the framework that will end the oil & gas industry(for combustion anyway).

Yes, a carbon tax will create a HUGE advantage to gas over coal. But if we implement a carbon tax immediately followed by efficiency/storage regulations, NO ONE will install gas over renewables+storage.

Anyway.....aren't we already installing gas plants as quickly as these clowns can get away with it? It certainly can't speed up much more!

 

[TheTalkingMule]

Speaking of insurance....this should be interesting.

Exclusive: Saudi Aramco pursues war cover after attacks - sources

 

[mblakele]

I'm optimistic about the effects of a carbon tax, especially when sanitized by dividends so it isn't regressive. For businesses, I think the main benefit is a predictable regulatory environment. Businesses like predictability: it lets them plan ahead.

 

[mspohr]

I'm optimistic about the effects of a carbon tax, especially when sanitized by dividends so it isn't regressive. For businesses, I think the main benefit is a predictable regulatory environment. Businesses like predictability: it lets them plan ahead.

I think fossil fuel businesses should plan on going out of business leaving stranded assets and bankrupt investors.
That's the kind of predictability I like.

 

[mblakele]

I think fossil fuel businesses should plan on going out of business leaving stranded assets and bankrupt investors.
That's the kind of predictability I like.

That would be emotionally satisfying, but workers and retirees would suffer. We need to wind down carbon-intensive industries — no question. Many economists say that a well-designed carbon tax would do that as quickly and efficiently as possible, with a minimum of suffering.

Economists' Statement | Climate Leadership Council

 

[mspohr]

That would be emotionally satisfying, but workers and retirees would suffer. We need to wind down carbon-intensive industries — no question. Many economists say that a well-designed carbon tax would do that as quickly and efficiently as possible, with a minimum of suffering.

Economists' Statement | Climate Leadership Council

No, it's not workers and retirees who would suffer (they can be reemployed to build renewable infrastructure and the government guarantees pensions). It's the greedy corporations and their bosses who would suffer... rightly so from their incompetent, short term profit seeking behavior.
Don't get me wrong. I think a carbon tax (with redistribution) would help dampen demand but we are at a point where drastic action is required. We need to accelerate the transition to renewable energy powering everything and we need to stop burning fossil fuels. A very large carbon tax ($100) with the proceeds going to build renewables and subsidize electric transportation, heat pumps, insulation, etc. would go a long way. I really don't care if the fossil fuel companies suffer as a result. They have destroyed the environment and need to die... the sooner the better.

 

[adiggs]

That would be emotionally satisfying, but workers and retirees would suffer. We need to wind down carbon-intensive industries — no question. Many economists say that a well-designed carbon tax would do that as quickly and efficiently as possible, with a minimum of suffering.

Economists' Statement | Climate Leadership Council

Thanks for that link. I like that it's pitch is primarily a Republican one and that it's market based. If the Republicans in the Senate got busy turning this into legislation and had Trump's vocal support, I think it would be hard for the Democrats to avoid passing it. That'd be good for Republicans in the upcoming election. It'd also be good for Democrats to pass it as it'd enable them to hoist Republicans on their climate science denial (at least those that stick with it), and it'd get all of us moving on something important. That looks like a big bipartisan win that everybody can trumpet for one reason or another.

And I don't care if there are some supporters that think this will help them out personally (natural gas) by kicking Coal to the curb aggressively, while leaving room in the market for their natural gas plants. We have reasons to believe that the peaker plants will follow closely on the heels of Coal as they'll still have carbon taxes to pay, smaller though they might be, while we see evidence that big battery installs can provide peaker functionality at a lower cost. Either way, the market price signals will lead individual choices in the right direction.


I'm not big into revenge or punishment. I'm big on solving the problem, and I think one of the best impediments to a solution we can throw up is a desire for retribution or punishment against those that have helped get us here. The carbon tax will be a pretty strong disincentive to the use of their product, and will itself be the 'punishment' needed - it'll just add additional costs and further accelerate the demise we've been tracking.


I think that leads to an interesting question. Is it more important to generate progress even if it's a Republican / Conservative plan, or is it more important to adopt a Democrat / Liberal plan?

For my one single vote, of the plans I know about for climate change action, this looks to me like the plan with the least opportunity for corruption, manipulation, and graft (the border adjustments being the obvious opportunity for preferencing some industries / products over others), and the plan with the best likelihood to create rapid and sustained progress. I would love to see this enacted in the US.

 

[jhm]

Clean Free Market Policy Beats a Carbon Tax. Here's Why.

Here's one interesting proposal for an alternative to a carbon tax. The idea is the make interest on clean energy tax free. It seems better than and ITC because it does not require creation of complex tax equity structures to be able to harvest the subsidy. The tax break on clean energy interest would be about 30%. So debt issuer could get 4.2% financing instead of 6% for taxable debt. An interesting feature of this tax break is that the effective subsidy increases for higher risk projects and for longer term debt.

 

[mblakele]

Clean Free Market Policy Beats a Carbon Tax. Here's Why.

Here's one interesting proposal for an alternative to a carbon tax. The idea is the make interest on clean energy tax free. It seems better than and ITC because it does not require creation of complex tax equity structures to be able to harvest the subsidy. The tax break on clean energy interest would be about 30%. So debt issuer could get 4.2% financing instead of 6% for taxable debt. An interesting feature of this tax break is that the effective subsidy increases for higher risk projects and for longer term debt.

Interesting idea, although the article seemed a bit fluffy. Anyway there's usually room for both carrot and stick. But carrots cost more than sticks.

 

[jhm]

Powering The EV Revolution — Battery Packs Now At $156/kWh, 13% Lower Than 2018, Finds BNEF | CleanTechnica

So BNEF has updated their estimates of the cost of EV battery packs.

So the good news is that from 2010 to 2019 pack cost is continuing to decline 20% per year. The disappointing news for me is that the decline is only 13% in this last year.

The worry of course is whether this mere 13% decline is signaling a slower trend. One observation does not a trend make, however. This is well within the ordinary variability of past one-year declines. Of these 8 two of them 2012 to 2014 were slower declines than 13%. They were 8% and 11% respectively, but they were immediately followed by a 35% drop. So the average decline from 2012 to 2015 was just about 20%. So even when the pace seems to slow down a bit the underlying work to optimize the battery supply chain continues.

So I think it is premature to conclude that a 13% decline signals a slower rates going forward. To get to the magical $100/kWh level in 2 or 3 years requires a near term decline rate between 14%/y and 20%/y. So I continue to expect this target by 2022. BNEF is still hedging their bet by targeting 2023.

I would also point out that Benchmark Minerals is estimating that cell cost as declined 21%. This is not consistent with BNEF estimates that imply cell costs have declined just 12%. Naturally the two organization are using different methodologies, but the gap here may point to data quality issues or other issues in either or both methodologies. So I am a bit skeptical that the BNEF cell cost estimates are as high as reported.

 

[jhm]

https://www.cnbc.com/2019/11/25/glo...his-year-in-biggest-drop-since-recession.html

Global passenger car sales fell to 80.6 million in 2018 from 81.8 million new units sold in 2017, which was the first annual decline since 2009, Fitch said. Worldwide sales in 2019 look likely to fall by another 4% to around 77.5 million new vehicle sales.

Fitch Ratings doesn't see a rebound in 2020 either.

"While we don't see a sharp further decline in global manufacturing in 2020, the auto outlook is pointing to a stabilization at best rather than any sharp rebound," Coulton told CNBC.

New passenger vehicle sales plunge more than 20pct, still no talk of EVs | The Driven

To put this in a broader context, global sales of new vehicles have also fallen, down 5.8 per cent according to a new report from the Economic Intelligence Unit.
...
The EIU predicts a 1.7 per cent rise in global car sales in 2020, with the biggest boost coming from electric vehicles, which it expects to jump to 2.8 million from 2.2 million (a rise of 30 per cent), driven by initiatives such as the new Tesla gigafactory in China, and the response of Chinese manufacturers.

Ok, Fitch thinks 2019 auto sales are down 4% to 77.5 million, while EIU thinks it's down 5.8%. EIU thinks it will recover 1.7% in 2020, while Fitch suggests the market will stay flat. So between the two views growth in 2020 auto sales could be 0 to 1.3 million.

Meanwhile 2.2 million EVs in 2019 looks a little small. Let's suppose EV grow resumes to 30% to 60% range. That, 2.86 M to 3.52M or growth in range of 0.66M to 1.32M.

The point I'm getting to here is growth in EVs could capture all the recovery in the auto market. There is a very good chance that ICE sales will continue to decline in 2020. EVs will scale up further in 2021 and beyond. Thus, the peak back in 2017 (correct me if wrong) very well could stand as all time peak ICE. To prove otherwise, we'd most likely need a strong recovery within the next couple of years to set a new peak. But both Fitch and EIU are saying that strong recovery won't happen in 2020.

 

[jhm]

I'd like to propose a capacity market for dispatchable load. The objective is to assure capacity to balance the market when there is an abundance of VRE, to preserve the value of VRE and to avoid emissions.

Price-adaptive load such as batteries and electrolyzers will try to cover capex by consuming power when it is cheapest, which apart from imposing an emission price on generators can induce demand for high emissions power.

We may consider a market that compensates price-adaptive load for consuming less when emissions are highest. A capacity market can provide participants with bankable payments in exchange for paying a price on emissions.

Here's the math.
P(t) price of power ($/MWh) at time t
ER(t) emission rate (t/MWh) at time t
TER target emission rate, say 0.200t/MWh
PE price of emissions, say $100/t
EAP(t) = P(t) + PE×(ER(t) - TER), emissions adjusted price

Participants in this market receive annual capacity payment C $/kW in exchange for buying power at the adjusted price EAP(t). The payment C and participants could be set by auction. Non-participants may yet have access to power at price P(t).

Suppose you need to operate an electrolyzer 1MW at 90% capacity. You find 2MW at 45% capacity under price AEP(t) has the same OPEX as 1MW at 90% under price P(t). You may be willing to bid as low as C = annual cost of 1kW electrolyzer to participate in this market.

Thus, load capacity participants are incentivized to hold incremental capacity so as to consume more when VRE producing an abundance and less when fossil fuels are generating the bulk of power or prices are high. This pushes the system to lower average emission rates.

Industries that have a low capital cost to avoid emission will bid down to low capacity payment C. If the target TER is low enough the net adjustment based on AEP(t) - P(t) will offset capacity payments. If ER is high enough, emissions will be avoided.

If target emissions TEP and price of emissions EP are well chosen and capacity payment C set by auction, a load capacity market can help balance the grid, solve storage problems, enhanse the value of VREs and avoid emissions at minimal cost to public. No carbon tax, just a voluntary price on emissions.

 

[jhm]

Suppose you need to operate an electrolyzer 1MW at 90% capacity. You find 2MW at 45% capacity under price AEP(t) has the same OPEX as 1MW at 90% under price P(t). You may be willing to bid as low as C = annual cost of 1kW electrolyzer to participate in this market.

I think I got the ratio wrong. Should be "C = annual cost of 1/2 kW electrolyzer."

 

[jhm]

Bloomberg - Are you a robot?

Aramco IPO has finally happened. They raised $25.6B in what appears to be 1.5% of the $1.7T asking price. The offer was oversubscribed to the tune of $119B.

It will be interesting to see how this actually trades. Net income in 2018 was $111.1B so this is like a 15.3 P/E for a low growth issue.

Looking forward to the day when Tesla surpasses Aramco in market cap.

 

[TheTalkingMule]

Market cap doesn't count when it's being gauged off a bunch of domestic and regional billionaires with a gun to their head.

 

[jhm]

Market cap doesn't count when it's being gauged off a bunch of domestic and regional billionaires with a gun to their head.

I seems like a sham. Force your wealthy buddies to pony up $25.6B. Hope the market believes this stock is going somewhere. Then sell like hell.

What's that called? Pump...and something?

 

[TheTalkingMule]

Desperate times for the Saudis. OPEC+ will cut by a further 500k, mostly by SA.

This is it folks. Peak everything.

 

[Doggydogworld]

Desperate times for the Saudis. OPEC+ will cut by a further 500k, mostly by SA.

SA now run by a new generation that doesn't remember how this strategy led to ruin in the '80s.

 

[ggr]

I tried a bit on Yahoo Finance to find the trading symbol for Aramco, but failed. Anyone know what it is? And when it starts trading on the open market, or what it's doing if it has already?

 

[mblakele]

I tried a bit on Yahoo Finance to find the trading symbol for Aramco, but failed. Anyone know what it is? And when it starts trading on the open market, or what it's doing if it has already?

They've only announced the IPO price today. Actual IPO "expected next week":

No Riyadh rush as many global investors steer clear of Aramco IPO

However many global investors focused on emerging markets are set to stay away when Aramco debuts on the Riyadh bourse, expected next week, according to information provided to Reuters by 26 major asset managers outside the Gulf region who collectively manage more than $7 trillion.

Most of the active fund managers said they would likely steer clear of the IPO, citing persistent concerns about risks around governance, the environment and regional geopolitics.

All of the passive managers, who track certain indexes rather than making specific investment calls, also said they would not buy shares in the offering. But the bulk of them are likely to routinely become investors when the stock is admitted into the indexes of benchmark providers MSCI, FTSE Russell and S&P, a development due as early as late-December.​

This looks like a very thin float: they're only raising about $25B on a valuation of $1.7T. Initially it'll be traded only on the Riyadh exchange, which isn't large by global standards. Listings on other exchanges may happen next year.