I wasn't so much interested in the actual numbers the report provided, but the macro impacts.
The report is based on a Carbon tax increasing the price of energy. What we have now is a situation where other events have created the same effect, although as you point out the price increases are more dramatic than the report considered. The same macro changes should result, if the models are decent.
Based on that, we should expect an up blip in inflation, and without fiscal stimulus we should see the consumers pulling back. After that, the inflationary impact dwindles, and a potential deflationary period could occur if recession results. If we get fiscal stimulus, retailers would be a good place to be. Steel Mfgs, Chemicals etc probably best avoided. I happen to have some exposure to Steel currently, and was considering chemicals as a contrarian play. Maybe not such a good idea.
One macro trend was the shifting of energy intensive activities overseas. The report suggest that high energy activities would tend to migrate to areas with less restrictive carbon limits- I would imagine Korea might be a natural candidate.
Given no carbon restrictions in place currently, this may not be as applicable. Still, high energy activities like the mfg of Steel might relocate to areas rich in local energy sources, ie Indonesia. Much of the American Steel industry is already on the edge- higher energy costs could shutdown some local capacity.
Like yourself, I've not quite digested the info entirely. But I'm begining to think of $30 oil to a 7% tax increase, after reviewing the historical prices for the past decade. I don't even like to think of what $35 or higher would mean, if sustained. |
