Your future profits €" and losses €" could be affected by an upcoming Senate debate on climate change legislation. The outcome will likely be felt by your customers and reflected at checkout in the form of what they buy, where they buy it and how much they pay.
But what do climate politics have to do with convenience stores, you ask?
For starters, pending legislation may reduce your customers€™ disposable income and eliminate your largest revenue generator. And that€™s just one drawback to a bill whose costs far outweigh any potential benefits, as it would likely increase energy costs and do considerably more economic harm than environmental good.
On June 26, the House of Representatives voted 219 to 212 to pass the American Clean Energy and Security Act (H.R. 2454), also known as the Waxman Markey bill after its sponsors: House energy and Commerce Committee Chairman Henry Waxman (d-Ca) and energy and environment Subcommittee Chairman Ed Markey (D-MA). According to the sponsors, the bill was written, "To create clean energy jobs, achieve energy independence, reduce global warming pollution and transition to a clean energy economy."
The central feature of the bill is a carbon cap-and-trade program. The "cap" component would impose a carbon emissions limit that, over time, would continually reduce the amount of carbon emissions in the United States. The bill targets a 20 percent reduction in carbon emissions by 2020 and an 83 percent reduction in carbon emissions by 2050.
The bill covers all sources of emissions, including stationary sources such as factories, power plants and refineries, as well as transportation fuel sources like vehicle tailpipe emissions. Refiners will be held responsible for offsetting the tailpipe emissions.
The "trade" portion of the proposal licenses the right to emit carbon (in the form of credits or allowances) and then mandates that businesses buy those rights if they cannot reduce their own emissions. The bill allocates a certain amount of free allowances to various industries at the onset to get the program started, and then creates a trading platform for the exchange of allowances.
Such are the basic mechanics, but the devil is in the details.
The most dramatic indication of the legislation€™s intent can be found in the allocations of free allowances to industries. In an effort to attract support from representatives around the country, allocations were politically motivated. Electricity providers generate approximately 40 percent of the carbon emissions in the nation, yet because Congress wanted to protect consumers from higher electricity rates €" and attract the support of politicians in coal-producing regions of the country€"this sector of the economy received 44 percent of the available allowances.
Meanwhile, refiners have to fend for themselves. While responsible for 44 percent of all covered emissions, the oil and gas industry was allocated only two percent of available allowances. The Congressional Budget Office estimates that this decision could add as much as 77 cents to the retail price of gasoline in the next 10 years. The Heritage Foundation, meanwhile, estimates that gas prices could increase 74 percent by 2035 because of this legislation.
In general, this bill strives to electrify the transportation system. In the long term, this represents a direct attack on the convenience industry by attempting to take away more than 70 percent of the industry€™s business, in the form of motor fuels.
In the near term, this bill is not a "cap and trade" program, but rather a "cap and entrap" program. If prices indeed increase and consumers express their distress €" as they have in the past €" it is all but guaranteed that local, state and federal officials will investigate and prosecute retailers for price gouging. So, Congress will have forced prices up through its "cap" program and then prosecutors will target retailers for prices beyond their control.
For these reasons alone, the Waxman-Markey bill is a bad deal for convenience retailers €" but the challenges do not stop there.
In addition to increasing the cost of petroleum products, Waxman-Markey could also increase electricity rates, despite the favorable allocation of allowances. Costs ranging from lighting to powering the roller grill and beverage cooler are set to rise. The reason: The bill will drive up the costs at the coal-fired utilities that make electricity.
In an Associated Press story, the Missouri Public Utility Alliance pegged the average electric rate hike in that state at 10 percent in 2015, up from 2005. By 2020, the increase would be 17 percent, and by 2030, rates would be 82 percent higher!
During debate in the House of Representatives, supporters and opponents of the American Clean Energy and Security Act quoted a variety of analyses estimating the overall financial impact of the bill. For example, the Congressional Budget Office estimated the cost at only $175 per family per year by 2020.
On June 26, however, The Wall Street Journal reported that this analysis has so many caveats that the finding is "useless." The paper references Heritage Foundation analysis that estimates a family of four would incur an annual cost increase of $1,870 by 2020, and an increase of $6,800 by 2035.
The bill will take its toll on your consumers too. Analysis completed by CRA International, a leading global consulting firm specializing in market dynamics, demand forecasts and policy analysis, estimates that the Waxman-Markey bill may kill 800,000 jobs by 2015 and 1.9 million jobs by 2020. If accurate, this would increase the unemployment rate another 1.1 percent by 2020. The Heritage Foundation is less optimistic and estimates a more severe employment drop €" 1,145,000 lost jobs on average, peaking at more than 2,479,000.
At the NACS State of the Industry Summit this year, Western Washington University professor David Nelson linked a rise in unemployment to a loss in inside sales. For every one percent rise in the unemployment rate, he reported, the average retailer can expect to lose about $1,240 a month in sales.
However, supporters of the bill argue that investment in "green technologies" will create five million new jobs. But no evidence exists that employment has grown anywhere in the world because of similar mandates. There is evidence, however, that increasing the cost of energy will result in higher costs for other consumer goods.
As energy grows more expensive, all consumer goods €" from candy to cornflakes €" will grow more costly, too. Compounded with the increase in unemployment, more expensive consumer goods will reduce overall demand. In turn, this will lead to reductions in factory production, generating even more employee layoffs.
Further, the energy cost burden associated with the Waxman-Markey climate bill will fall disproportionately on your customers. It€™s a fact: Average-income families give a larger share of their wallet at the pump and inside the store. Working families that rely on value and convenience will be hit the most by this climate bill.
Roy Innis, chairman of Congress of Racial Equality, one of America€™s oldest civil rights organizations, calls Waxman-Markey "elitist" and "immoral." He wrote to Congress, "I have seen few federal bills that would do more harm to America€™s working class and low-income citizens and families."
The basis of this legislation, he argued, "is the morally repugnant concept that constricting sources of domestic energy and raising energy costs is a good thing because it will force conservation by consumers. That elitist view assumes that poor, working-class families have the ability to bear that 'social cost.€™"
Chairman Waxman has said the bill will decisively deal with global warming and improve U.S. energy security. Supporters also argue that America should lead the charge in addressing climate change so other countries will follow. But not everyone agrees.
Climate scientist Chip Knappenberger of New Hope Environmental Services estimates that Waxman-Markey would only reduce the earth€™s future temperature 0.1 to 0.2ËšC by 2100.
And pollution in the rest of the world continues to grow. India and China have already indicated they won€™t agree to a global plan to lower CO2 emissions. If the United States loses jobs to India and China because of rising costs in our own country, the unhappy fact is that net CO2 emissions are going to grow even faster worldwide. Under that scenario, climate improvement is a dream.
Many people believe the cap-and-trade program of the Waxman-Markey bill will exacerbate the manipulation of the commodities market and create a system that encourages and rewards cheating.
Carbon allowances will be worth billions of dollars. In fact, President Obama€™s budget proposal depends upon these revenues to fund government operations, estimating a federal revenue take of $646 billion over eight years.
But some argue this is a conservative estimated value of credits; the actual value could be significantly higher. With so much at stake €" and so complicated that it may be administered by three separate federal agencies €" the allowance program is ripe for manipulation and abuse.
Where cap and trade has been applied in Europe, for example, instances of fraud abound. One example, reported by The Heritage Foundation, detailed factories in China that were deliberately built to emit more greenhouse gases, just so the Chinese government could be paid big sums by European players to make relatively cheap facility changes to lower those emissions.
That gets to the heart of the criticism, expressed most recently by William O€™Keefe, head of the George C. Marshall Institute on public policy. Europe has already witnessed companies paying themselves for carbon offsets, he noted. At the same time, firms have built plants for the sole purpose of receiving tax dollars to shut them down.
And it€™s not like Europe is the exclusive home of carbon cheats. William Nordhaus, economist at Yale University, believes that cap and trade would lead to "pandemic cheating."
O€™Keefe and Nordhaus see the possibility that carbon allowances worth billions of dollars will incent traders to create mechanisms for additional financial gain, setting the stage for a repeat of the manipulation of derivatives and exotic financial instruments that brought on America€™s banking and credit crisis.
Given the narrow majority of approval for Waxman-Markey in the House of Representatives, it is unlikely the Senate will take the House bill and run with it.
In an effort to secure support, sponsors made several deals with opponents, namely the agricultural community. These deals have frustrated the environmental community to such a degree that environmental groups have split. Some groups like the Sierra Club and the Environmental Defense Fund remained supportive, secure in the belief that something is better than nothing. Others, like Friends of the Earth and Greenpeace, voiced strong opposition, believing that the principle objectives of the bill had been negotiated away. All this division will have an effect on Senate deliberations.
Several Senate committees share jurisdiction over this. For example, the Senate Energy and Natural Resources Committee has already approved a package of energy-related legislation. But the primary work on carbon reductions and the cap-and-trade program will be completed by the Environment and Public Works Committee, which began convening hearings and developing legislation in early July.
Chairman Barbara Boxer (D-CA) has said that the House bill would represent the starting point, but that the Senate would put its own mark on the bill. She has assigned members of her committee to lead working groups on specific components of the bill. A comprehensive climate bill is not expected on the floor of the Senate until this fall.
In the meantime, NACS is voicing strong opposition. In advance of the House vote on the issue, NACS sent a letter to Congress expressing opposition. NACS sent a similar letter to the members of the Senate Environment and Public Works Committee in early July. To read the letters, visit www.nacsonline.com/EnergyPolicy.
For the convenience and petroleum retailing industry, this legislation attacks our number one consumer product €" motor fuels €" and poses a significant threat to the viability of our industry. The Senate must make substantial improvements to the bill or we suffer.
For retailers who wish to weigh in on this issue, NACS has prepared a draft letter to send to your senators with two clicks of a button. www.nacsonline.com/grassroots.