Feb 3, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning. My latest Harder Line column takes stock of efforts to get Congress to back a carbon price. I'll share a glimpse of that, and then Ben Geman will take over the rest.

Today's Smart Brevity count: 1,258 words, < 5 minutes.

1 big thing: Congress gives no love to carbon price

Illustration: Aïda Amer/Axios

New lobbying urging Congress to support a price on carbon emissions is not convincing lawmakers to warm up to the policy.

Why it matters: A carbon price is widely considered one of the most economically efficient ways to tackle climate change. But, economics be damned, its politics remain deeply unpopular.

Where it stands: Despite renewed agreement that climate change is a problem the government should address, Democrats and Republicans are talking past each other on policy — neither party is coalescing around a carbon price.

This dismissal is occurring despite a growing list of deep-pocketed and influential interests saying they want Congress to pass precisely that policy, including most parts of corporate America, from ExxonMobil to AT&T.

The intrigue: The subtle evolution of one moderate House Republican — Rep. Tom Reed of New York — illustrates today’s persistently cool reception.

  • When I interviewed him last summer, he said flat out he “doesn’t support a carbon tax” but that a carbon dividend is “more intriguing” to him.
  • Fast forward to last month. He told me he has become less optimistic about its prospects and his potential support for it because of long-standing concerns about the money not actually ending up back in Americans’ pockets.

A more fundamental dynamic is at play with Republicans.

  • Backers of a carbon price believe they can push it over the finish line. They say it’s just a matter of time until at least a few Republicans embrace it, and most Democrats accept it despite wanting something more aggressive.
  • That scenario ignores one possibility: that Republicans don’t ever embrace it and instead indefinitely push their renewed focus on innovation, which was also the climate agenda of America’s last Republican president, George W. Bush.
“There is a risk that the innovation agenda is inadequate to address climate change but adequate to address the political pressure on Republicans. That is a risk today."
"But the forecast for the impacts of climate change is so severe I believe that pressure to address the reality of the situation will make the current proposals clearly insufficient in time.”
— Alex Flint, executive director, Alliance for Market Solutions

Yes, but: It’s still early days for these efforts. Lobbying behind the scenes could produce a sea change not yet publicly evident, either imminently or years down the line.

What’s next: Expect more support to emerge from Capitol Hill soon. One group, which is pushing a carbon price where the revenue is returned to consumers, is announcing new members this month.

Read more

2. Coronavirus sends OPEC scrambling
Expand chart
Data: The Center for Systems Science and Engineering at Johns Hopkinsthe CDC and China’s NHC; Map: Danielle Alberti/Axios

OPEC's possible responses to the spreading coronavirus that's hurting oil demand and prices are starting to come into view.

Driving the news: Reuters reports that OPEC and allied producers could deepen their existing production-limiting pact by 500,000 barrels per day.

  • The Wall Street Journal has the same info, but also reports: "Another option being considered would involve a temporary cut of 1 million barrels a day by the Saudis to jolt oil markets."

Why it matters: Besides killing more than 360 people so far, the outbreak is severely curtailing airline and economic activity in China, the world's largest oil importer and second-largest oil consumer.

  • Brent crude prices have tumbled by roughly $10 per barrel in the last two weeks. It's currently trading in the low-$56 range.

The big picture: This new Bloomberg piece, citing people with "inside knowledge" of China's energy sector, gets to the scary and immense scale of what's happening...

  • "Chinese oil demand has dropped by about three million barrels a day, or 20% of total consumption, as the coronavirus squeezes the economy."
  • It's "probably the largest demand shock the oil market has suffered since the global financial crisis of 2008 to 2009," they report.

What's next: A technical monitoring committee for OPEC+, which is the alliance between the cartel, Russia and allied producers, is slated to meet this week, per multiple reports.

  • A higher level emergency meeting could occur later this month, several outlets report.
3. Jim Cramer jolts divestment debate
Screenshot of CNBC tweet

CNBC money pundit Jim Cramer is an unlikely new avatar for climate activists with his take on Big Oil's future.

Catch up fast: Cramer made waves Friday with his response to ExxonMobil's and Chevron's glum earnings reports...

  • “I’m done with fossil fuels. They’re done," he said, later adding, "We are in the death knell phase" and citing divestments by "a lot of different funds."
  • Cramer said fossil fuels' market prognosis is now untethered from their fundamentals.
  • He cited "new kinds of money managers who frankly just want to appease younger people who believe that you can’t ever make a fossil fuel company sustainable."

Where it stands: It excited divestment advocates like Naomi Klein, Bill McKibben, and Bernie Sanders, who all seized on the comments from an analyst outside the activist ranks.

  • "Why are Wall Street investors getting scared of fossil fuel stocks?" Bernie Sanders tweeted.
  • "Because the climate justice movement is making it clear that political pressure for divestment will not stop. It will only grow stronger."

The big picture: Friday's results sent the stocks of Exxon — already at a decade-low after several tough years — and Chevron downward. It's just the latest sign of the sector's waning market performance.

  • Bloomberg columnist Liam Denning notes that energy's weighting in the S&P 500 index last week fell below 4% for the first time in at least four decades.
  • Exxon fell out of the S&P's top 10 for the first time last summer — a sign of its declining market value, especially relative to other huge corporations.
Bonus: More on Cramer's broadside
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Data: FactSet; Chart: Axios Visuals

While climate activists quickly signal-boosted Cramer's comments, it's hardly clear that investors are truly spooked over climate concerns and pressure.

  • A more conventional analysis is that industry woes stem largely from the glut of both oil and especially natural gas in recent years. Chevron wrote down $10 billion in assets in Q4, largely related to gas holdings.
  • "Rising demand, exceeded only by the amount of supply growth depressing prices and shares, is an odd situation to characterize as the 'death knell phase,'" tweeted Jason Bordoff, head of a Columbia University's energy think tank.

Quick take: Axios' Dion Rabouin said poor financial performance — not the environment — is what's really behind the trend of fossil fuel divestments. Check out the chart above.

  • "The oil companies are underperforming, so they're much easier to drop. And because the Dow and S&P 500 haven't dropped them, firms and asset managers can outperform the market and claim it's all an effort to be woke on the environment and sustainability," Dion notes.
4. A word of caution on the Super Bowl EV ad blitz
Screenshot of Audi's Super Bowl ad for the e-tron Sportback

Last night's big game featured electric car ads for Audi's e-tron Sportback (featuring "Game of Thrones" star Massie Williams), GMC's Hummer (with LeBron James), and Porsche's Taycan.

Why it matters: The ads are the latest sign of the growing volumes of electric models becoming available or in the offing (the New York Times notes that some markets also had an ad for Ford's Mustang Mach-e with actor Idris Elba).

But, but, but: The NYT piece, which explores how EV sales remain a tiny corner of the market, has a fascinating tidbit about how automakers really spend their ad budgets. The firm Kanter Media ran the numbers for them and per NYT...

  • "The auto industry spent $8.6 billion last year on national and local advertising in the United States, but just 0.3 percent of that went toward promoting electric vehicle models."
  • They note the figure does not include local dealership ads or social media campaigns.

What's next: Seemingly a stronger effort to market the cars. Their piece notes that "some companies are already signaling a shift in emphasis in the years ahead" and that Audi plans to devote half its global market budget to EVs this year, compared to 10% in 2019.

Ben GemanAmy Harder