"The Carbon Tax is Coming. The Carbon Tax is Coming"

The ASPO-USA conference “A Midnight Ride for Peak Oil” held, appropriately enough, in Boston October 25-27, should have had their mascot, Paul Revere, on hand to awaken the residents of the land with a loud cry of “The Carbon Tax is Coming!”

It is coming, indeed. But first a definition:

“A carbon tax is a tax on all activities that emit carbon dioxide, principally the burning of fossil fuels — not just gasoline, but also natural gas, jet fuel, propane and coal.”

Today’s news

“Voters in a Colorado university town nestled in the foothills of the Rocky Mountains have passed the country’s first municipal carbon tax to fight global warming.

Boulder, Colorado., will charge residents and businesses the carbon tax based on how much electricity they use. Most electricity in Boulder is generated at plants that use coal, which produces more of the main greenhouse gas carbon dioxide, than natural gas or oil.” – MSNBC 11-10-06

You can count on other cities in California and the Pacific Northwest following suit soon. Milwaukee and Minneapolis have elected officials interested in a carbon tax as well, with a substantial number of smaller cities also studying the issue.

I hate taxes. You hate taxes. Now that we got that out of the way… Legislation and tax structures to limit Greenhouse Gasses (“GHG”) are coming on like a slow freight train picking up speed. A fair number of attendees at the Boston University Peak Oil conference were from local, city, county, and state governments. They were there to (hopefully) assess the problems of declining transportation fuel availability and climate change and to (hopefully) come up with ways government might mitigate these issues in ways that industry cannot. I must admit to being quite nervous about government’s abilities in such an endeavor (or any endeavor) but I understand that they must try.

You want to argue the politics of it? Go ahead, but not with me. This post address’s the impacts these eventualities will have on our investment portfolios. I apologize in advance if I appear pecuniary, but people who have worked an entire lifetime to build a portfolio and a business usually view this issue slightly differently than people who have not.

However it is installed a carbon tax will, at some point, lower our use of fossil fuels, and by extension, slow the economy. How can it be otherwise? Energy use drives the economy for the moment, and a carbon tax is a negative incentive to use less energy. Less miles driven means cars and tires wear out slower, smaller cars means less steel and glass is consumed. Encouraging telecommuting means less demand for office space, parking lots, toll collectors, gas stations and auto repair, luncheons… get the idea?

I particularly enjoy that telecommuting theme. The idea is to encourage corporations to allow much of their office, administrative, and sales staff to work from home. It seems like a good idea, and it is coming, one way or the other. But the unintended consequences are going to rock some people’s world.

For example, say we were successful in removing 10 million commuters from the nations highways by having them work at home. Let’s stay away from the productivity issues. Can you imagine how this might affect the office market? 10,000,000 workers consume 250 square feet of office space each, and one parking space. So what happens to the 2,500,000,000 square feet of office space they no longer use? How does the economy react to THAT? Do we just leave those hulking towers of steel, cement, and glass standing there? Where does that leave the construction industry?

Those 10 million people are going to be doing a lot less driving. What is the impact of 10 million people driving 7,500 fewer miles each year on the auto industry (and the related service industries)?

Will there still be jobs for these 10 million former commuters considering the effects on the auto and construction industries as well as the office market?

No, these things are not going to happen over night. Actually, they could if any kind of oil supply disruption occurred. But assuming no disruption, this process will play out over a decade or more. Still, the impact on the economy, industries, the financial markets, real estate, and your business will be jarring.

Mentatt (at) yahoo (dot) com