Watch Out for Climate Change Laws

08/19/2009 11:00 am EST

Focus: MARKETS

Knight Kiplinger

Editor-in-Chief, The Kiplinger Letter, Kiplinger's Personal Finance, and Kiplinger.com

Knight Kiplinger, editor-in-chief of The Kiplinger Letter, says Congress could pass a climate-control bill by next year, and it could have far-reaching effects.

Whether you believe it’s needed or not, climate change legislation is a solid bet.

There’s a slim chance it will squeak through this year [and] a much greater one that, come 2010, legislation to curb emissions of carbon dioxide will become law.

The impact will be wide and deep—in 2030, for example, it would pare about 2.3% from gross domestic product (GDP). The cost of fuel and electricity will soar, despite swift growth in alternative sources of energy, such as solar, geothermal, and wind power.

New regulations will add 20% or so to electricity rates by 2020, and that’s over and above any increases anticipated from changes in supply and demand. All told, the average cost for residential, commercial, and industrial users may be 50% higher than today—more in areas such as the Midwest and Southeast, where coal-fired power dominates. There, [we can expect] a 100% hike.

As for gasoline prices, [they will be] about $2.00 a gallon more than they will be if climate legislation is not enacted.

The hardest hit industries, in addition to utilities, [will be]: makers of cement, chemicals, electronics, cardboard and boxes, fertilizer, aluminum, steel, glass, and plastics; ore and petroleum refiners; printers; paper and pulp mills; metal fabricators; food processors, and others.

Many businesses will need to rethink their supply chains, not just firms in the bull’s-eye. Transportation costs are likely to climb sharply, making near-sourcing more attractive for some. [Meanwhile,] some local suppliers will have to ratchet up prices to offset their own higher regulatory and energy costs.

Some may not survive the blow, sending businesses scurrying for alternative suppliers.

New and significantly renovated buildings will have to meet tough standards for energy efficiency, using 50% less energy than required for new construction today.

New rules should kick in by 2014 for residences, by 2015 for other types of buildings.

For older buildings not undergoing major overhauls, [there will be] a piecemeal approach.

Overall building efficiency standards won’t apply, but codes for replacement systems or components—boilers, air conditioners, windows, doors, roofing materials—will. Expect Uncle Sam to offer carrots as well as sticks to cut carbon emissions. Lawmakers are likely to extend today’s bevy of tax breaks for energy improvements, weatherizing buildings, replacing equipment with more efficient models and perhaps add to them. Ditto, incentives for on-site alternative energy production.

But energy cost hikes alone will spur changes. Users will seek savings, installing skylights and windows to cut down on lighting bills, employing sensors to calibrate heating & cooling temperatures, recapturing heat from manufacturing, etc. And entrepreneurs and innovators will develop new technologies to assist them.

Subscribe to The Kiplinger Letter here…

Related Articles on MARKETS