MONDAY OCTOBER 19, 2009

Age of Enlightenment

The U.S. Chamber of Commerce is under pressure to change its position on climate control.  The chamber has taken the politically incorrect position that the various "Cap and Trade" tax policies being discussed in Washington will have an adverse impact on its members and their employees.  The Chamber fears that these policies will result in job losses, at a time when unemployment is a real issue.  Adding to the pressure, five prominent companies (electric utilities PG&E and Exelon, tech giants IBM and Apple and sportswear leader Nike) have recently resigned from the Chamber, citing climate control differences.  These companies have been hailed in the media as enlightened companies for their principled stands in the name of the environment.  Or, are they just simple, self-interested, conflicted parties that stand to benefit from the institution of Cap and Trade?

Electricity generation has an extremely large carbon footprint.  Why would an electric utility support Cap and Trade policies when it would seem to hurt their own business prospects?  When the utility generates the majority of its power with nuclear reactors, like, you guess it, PG&E and Exelon!  Nuclear power generation creates little to no carbon.  It is easy to support Cap and Trade when it will severely hurt your competitors and have minimal impact on your own business.  Utility companies that generate with coal and natural gas will see dramatic tax increases on their electricity.  Consumers of this electricity, namely Midwest companies and consumers, will be negatively impacted.  Are PG&E and Exelon really enlightened companies, or simply seeking a competitive advantage through these policies?

IBM, Apple and Nike are similarly seeking a competitive advantage through Cap and Trade.  All three of these companies have already moved the majority of their manufacturing overseas to countries such as China, Vietnam and South Korea.  These countries are highly unlikely to establish any policies that look remotely like Cap and Trade anytime in the near future.  Therefore, the companies will see little adverse impact to their businesses if Cap and Trade is established.  Companies that do manufacture in the U.S.(i.e. the competition) will see significant cost increases due to Cap and Trade.  In a perverse way, the companies that are being hailed as enlightened are the ones that have already moved their manufacturing processes overseas!  The companies that do manufacture in the U.S. will be punished by Cap and Trade.  Gee, do you think this will create an incentive to move manufacturing jobs overseas?

In the name of the environment, I have an idea.  I think IBM, Apple and Nike should calculate how much tax their overseas manufacturing processes would generate under U.S. Cap and Trade policies and volunteer to pay the tax.  What a noble gesture in the name of the environment that would be!  Enlightenment indeed!   

POSTED AT 1899-12-30 16:52:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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