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FOSSIL FUEL COMPANIES RAKED IN RECORD SUBSIDIES IN 2020
In 2020, companies that produce oil, natural gas, and coal collected a record $5.9 trillion in direct and indirect subsidies from the world’s taxpayers, a record amount, the International Monetary Fund (IMF) reported.
The figure includes not only direct tax breaks and allowances, but also the costs of tending to respiratory illnesses induced by carbon-based air pollution and environmental damages such as oil slicks on waterways—what economists call “unpaid externalities,” or those costs created by the use of companies’ products but that the companies never pay for directly.
Direct subsidies that cut fuel prices totaled $1.2 billion and tax breaks added just under $1 billion, the IMF calculated.
Health costs related to carbon-related air pollution made up 42 percent of the subsidies, or about $6.7 billion; the cost of property damage and other costs wrought by impact of heat waves, extreme storms, and other events increasingly attributed to mounting amounts of carbon in the atmosphere added up to $4.6 billion, the IMF reported.
The report found another $2.4 billion in miscellaneous costs.
Because of the subsidies, 47 percent of natural gas and 99 percent of coal are priced at less than half of the full costs their use incurs, the IMF said.
Two-thirds of the subsidies are footed by China, India, Japan, Russia, and the U.S.
All of those countries belong to the G20 group of wealthy nations that pledged in 2009 to end “inefficient” fossil fuel subsidies “over the medium term,” without defining what the medium term was.
TREND FORECAST: Although oil producers will see higher profits in the short term, long-term trends still point to their gradually diminishing role in the world’s energy economy: the price of renewable energy continues to fall, electric grids are scaling up their additions of massive battery banks to store renewably generated power, and a growing environmental ethic among the public will turn more users away from fossil fuels over time.
As we reported in “Shareholders, Court Darken Oil Industry’s Future” (1 Jun 2021), the global divestment movement has drained about $14 trillion from the fossil fuels industry since 2013 and will continue. More lawsuits from activist groups, including coalitions of young people seeing a carbon-fogged future for themselves, are lining up against producers.
Pressure on energy companies to curtail fossil-fuel production will continue to grow, especially as vehicle makers pledge to end the production of gas and diesel cars and trucks before 2040.
Trends Journal readers learned as long ago as 2018 that the oil industry was no longer a safe long-term investment but is increasingly a risky speculative play.
AMAZON DISCLOSES 20-PERCENT OWNERSHIP OF RIVIAN
Amazon owns 20 percent of Rivian, a maker of all-electric pickup trucks and SUVs that has announced an $8.4-billion initial public stock offering this week, which would value the company at about $60 billion, Bloomberg reported.
Amazon’s stake in Rivian is valued at $3.8 billion, it said, up from $2.7 billion at the end of last year.
Amazon also has placed an order with Rivian for 100,000 all-electric delivery vans, the company said.
The first 10,000 are to be delivered in 2022, with the balance coming through the rest of this decade.
Rivian began making its truck earlier this year but will prioritize production of Amazon’s order to generate income and cash flow.
Rivian’s assembly plant is in Normal, Illinois, but the company is in discussions to build a $5-billion facility in Fort Worth, Texas, and is considering another plant in Europe to produce some of Amazon’s vans, Bloomberg reported.
Ford Motor Co. has made an $820-million investment in Rivian.
TRENDPOST: When Ford unveiled its all-electric F150 pickup truck, it was swamped with 150,000 advance orders and recently announced it would open a second assembly plant and two more battery production facilities to meet the unexpected demand.
Ford’s success has paved the way for Rivian’s electric truck. Although Rivian is an unknown brand, the idea of an electric pickup truck is no longer odd.
T. ROWE PRICE BUYS CREDIT COMPANY OAK HILL ADVISORS
Mutual fund company T. Rowe Price will pay up to $4.2 billion to buy Oak Hill Advisors in Price’s largest-ever acquisition.
Oak Hill specializes in private credit (see related story in this issue). The purchase will give Price an entry into this fast-growing, though higher-risk, market that more institutional and wealthy individual investors wish to tap, Price CEO Bill Stromberg told the Financial Times.
Price manages $1.6 trillion in assets and will acquire 100 percent of Oak Hill, which has a portfolio of $53 billion, mostly in loans but also with some money in other forms of assets.
Price has sought to diversify from being an active asset manager focused on equities, analysts told the FT.
Price “needed more diversification” and buying Oak Hill gives the company “immediate access to fast-growing private credit markets, instantly filling a hole in their product line-up to meet client demands,” analyst Kyle Sanders at Edward Jones said to the FT.
Private credit markets have seen steadily growing interest as investors seek higher yields than bond markets have been able to provide.
CARLYLE AHEAD OF SCHEDULE IN RAISING $130 BILLION IN NEW FUNDS
The Carlyle Group, a $293-billion private equity firm, is ahead of schedule in its plan to raise $130 billion from investors by 2024, CEO Kewsong Lee said in an interview with the Financial Times.
On 28 October, Carlyle reported $731 million in distributable earnings for the third quarter, a measure of cash flow. That worked out to $1.41 per share, 385 percent more than for the same period a year earlier.
Distributable earnings now total $1.3 billion for the year, a jump of 255 percent from the first three quarters of 2020.
Carlyle cashed out of $14 billion in investments during the quarter and paid $531 million in profits to its partners and shareholders.
The firm invested $6.3 billion in new ventures during the quarter, bringing its total this year to $20 billion, a 109-percent increase over the same period last year.
In the third quarter, Carlyle brought in $22 billion in new investment capital, boosting this year’s total to $40 billion, 124 percent above the previous year to date and bringing the firm’s total assets to $293 billion, a 19-percent gain since this year began.
Carlyle’s share value has gained 120 percent in value this year, still lagging the long-term market performance of competitors Blackstone and KKR.
Still, Lee touted the fund’s turnaround since he was named sole CEO in July 2020.
Previously, Carlyle was “an array of fund strategies and a bunch of hedge funds,” he said to the FT. “It’s been one heck of a turnaround.”
Former Carlyle co-head Glenn Youngkin is now running for governor in Virginia.