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Is This The Most Exciting Oil Play Of The Last 20 Years?

The African nation of Namibia has never produced a barrel of oil in its history. Now, for the second time in less than two months, it’s received positive…

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This article was originally published by Baystreet

The African nation of Namibia has never produced a barrel of oil in its history. Now, for the second time in less than two months, it’s received positive signs that it could be home to 120 Billion barrels of oil generated in its giant Kavango basin. 

The small-cap explorer that’s bringing in the good news for Namibia is Reconnaissance Energy Africa (“Recon Africa”) (TSXV:RECO, OTC:RECAF), and its stock spiked last week after it encountered evidence of oil and gas for a second time and made an impressive commitment to ESG

On April 15th, Recon Africa announced the results of its first of three drills (6-2), showing evidence of an active petroleum system.

Not only did the results point to indicators of an active petroleum system in this nearly 9-million-acre basin, but also provided 200 meters of oil and natural gas indicators/shows over three discrete intervals in a stacked sequence of reservoir and source rock. 

Then, on June 3rd, RECO gave investors another reason to be excited, when the first section of its second well (6-1) provided further confirmation of a working petroleum system. At shallow depths, the well encountered 134 meters of light oil and gas. 

The second well is 16 kilometers from the first well and is in the same sub-basin. 

"In these first two wells, the many oil and gas shows, with such variety, is certainly remarkable. It is highly encouraging to see clastic and thick carbonate sections which appear to have similar reservoir characteristics as observed in many other petroleum provinces,” ReconAfrica director Dr. Jim Granath said in a statement.

With intermediate casing operations now complete and drilling on schedule, Recon Africa (TSXV:RECO, OTC:RECAF) expects to finish drilling its 6-1 well by the end of this month. 

The company also announced its commitment to allocate a minimum of CA$10 million of ESG expenditures to the Kavango region in which it operates. 

The anticipation appears to have increased excitement around the stock since mid-April when early results and indications of a working petroleum system in the giant Kavango basin came as a surprise to many. The anticipation for us is now palpable. 

Stock forums look to be buzzing… particularly since the rights to this huge basin, the size of Belgium, belong to a small-cap explorer that appears to have significant potential and cash in the bank…

Spencer Hohan, a petroleum engineer, commented on Yahoo:

“As a Petroleum Engineer of 40 years now, having spent a career with major oil companies, and smaller independents, it's hard to emphasize how rare it is for some like this to be a ‘hit’ on the first penetration well drilled based primarily on a geomagnetic survey. This is astounding. If the second well shows anywhere near similar geophysical properties, and further confirms the basin structure, this could easily be worth more than a hundred times its current price. Sorry, shorts. You'd best cover today, or you are bankrupt. And it may be too late already.”

Doug, an early investor, commented on Yahoo

“So far, so good, not only in exploration success, but also good will and investment in the people of Namibia. I invested in RECAF in October, 2020 at 0.7138. I then invested for 3 of my grandkids and showed them the company video to give them background on the oil exploration and talk about a company helping the community and country. Good companies not only make profit, they help people prosper. From what I can see, well done, team RECAF, well done.”

It’s a hot topic of conversation on Stocktwits, too:


We think that retail investors may just have found their favorite new stock. 

The Fast-Paced De-Risking of Our Pick For The Onshore Oil Play of the Decade

When the first results came in April, Dan Jarvie – Recon Africa’s geochemist and advisory board member - confirmed the results as showing indicators of the existence of a working petroleum system, stating: 

“These shows are indicative of migrated, thermogenic petroleum and occur over three different intervals in the 6-2 test well. The intervals penetrated include highly porous, permeable sediments and marine source rocks as predicted, and extensive marine carbonate lithofacies. Mud gas results indicate a high BTU gas with the presence of light oil in numerous cutting samples. Based on these initial results, the components and processes for a working petroleum system are all present.”

The Namibian government, too, felt there was cause for excitement. 

Promising results could put Namibia on the world’s oil exploration map in a very positive way. 

“This is great news for the people of Namibia, with the results of the well confirming a big potential for a very valuable energy resource for our country and therefore a significant development for Namibia onshore exploration efforts,” Hon. Tom  Alweendo, Namibian Minister of Mines and Energy, stated in a press release.  The positive results of this well have provided us with the critical information required to unlock the country’s petroleum prospectivity and is the first step in the process of locating significant accumulations, we can now confidently confirm Namibia is endowed with an active onshore petroleum basin.”

And it just keeps getting better.

The Kavango basin is over 8.5 million acres and as deep as the Permian basin in Texas.


That’s a huge basin for a small-cap company, but it’s fully funded for a 6-well drill and extensive seismic campaign, and we think it’s so far proven that it has what it takes with its experienced team. 

When Kavango started coming to the attention of some investors a few years ago, geologist and geophysicist Bill Cathey, who has worked with many of the oil and gas supermajors, commented about the basin: “nowhere in the world is there a sedimentary basin this deep that does not produce commercial hydrocarbons.”


To put things into perspective, late last year, Dan Jarvie provided what he called a “conservative” estimate of Kavango’s potential based on only 12% of Recon’s holdings. 

He estimated the basin could have generated 120 billion barrels of oil equivalent.


In November, Haywood Securities initiated coverage on RECO (TSXV:RECO, OTC:RECAF), saying that a discovery success would present manifold opportunities for strategic joint ventures for further de-risking--without additional shareholder dilution. 

A month later, Haywood adjusted their evaluation, noting that results showing evidence of the presence of a working hydrocarbons system, “should provide abundant opportunities for further exploration and appraisal drilling”. 

Even without the recent positive first drill results showing indicators of a petroleum system, Haywood appeared to see material upside as Kavango may be de-risked:


Haywood’s adjustment also coincided with an analogous report from Wood Mackenzie, comparing RECO’s Kavango basin to the enormous (Permian aged) Midland Basin in Texas. The Midland basin’s estimated development value is $540 billion. 

In April, when  RECO (TSXV:RECO, OTC:RECAF) released its first results, Haywood raised its price target. 

Shortly afterward, in May, ReconAfrica announced a C$25-million bought deal financing with Haywood. 

Now, Haywood has adjusted its short term price target on RECO upwards, saying the company “has all the ingredients to establish the existence of a working hydrocarbon system (in a relatively short cycle time) and subsequently evaluate and exploit the potential of the Kavango Basin”.

That includes “a fully-funded six well drilling and extensive seismic program, nearly 100% working interest in acreage across a vast, relatively straightforward land access, an owned drilling rig, a committed and capable management and technical team, stable governments with attractive fiscal terms and proven commitment to responsible development” … among other things. 

So now, the important question is whether it’s too late for investors to grab onto this opportunity. We don’t think so. 

Year-to-date, RECO (TSXV:RECO, OTC:RECAF) is up approximately 377%. 

There is a sizable amount of risk here. As Haywood notes, this is a high-risk/high-reward oil play. If the exploration fails, it could disappoint investors. But if it continues to find indicators of the existence of oil and its economic viability, we think it stands to have very exciting potential because this is a junior explorer sitting on a super-major size play. 

The drivers of further upward movement in the near future include, most urgently, the completion of drill no. 2 by the end of this month, and the full analysis of all results from the wells 6-1 and 6-2 which are anticipated at the end of July. 

From the first well (6-2) over 150 sidewall cores have been taken to Core Labs in Houston and 37 sidewall cores are on their way there as well from the shallower section of the second well (6-1). 

And we think there are plenty more drivers further out … 

We’re talking about a basin the size of Belgium, the rights to which are owned by a small-cap explorer with experienced geologists and cash to potentially go even beyond a six well drill campaign. If this continues, and it’s economically viable, it may enter JV territory, when investors could be rewarded for having jumped in on what could end up being the last major onshore oil discovery the world ever sees. 

Other oil companies to watch as crude prices continue to climb:

Even old-school fossil fuel producers are getting in on this race. Suncor (NYSE:SU, TSX:SU) might be known mostly for its oil production. But it’s one of the few majors really pushing the boundaries. In fact, it has pioneered a number of high-tech solutions for finding, pumping, storing, and delivering its resources.  When the rebound in crude prices finally materializes, giants like Suncor are sure to do well out of it. While many of the oil majors have given up on oil sands production – those who focus on technological advancements in the area have a great long-term outlook. And that upside is further amplified by the fact that it is currently looking particularly under-valued compared to its peers.

But that’s just one part of its business, however. Suncor is also a world leader in renewable energy innovations. Recently, the company invested $300 million in a wind farm located in Alberta. Additionally, as Canada moves away from oil, Suncor is well positioned to take advantage of another one of the country’s resource reserves; Lithium. The best part? It doesn’t even have to move very far. In fact, Alberta’s oil sands are a major hotspot for lithium production.

Asia isn’t going to be left behind in the oil race. In fact, as demand for energy continues to explode in a post-pandemic China, CNOOC Limited (NYSE:CEO, TSX:CNU) will likely be one of the biggest benefactors. It’s the country’s most significant producer of offshore crude oil and natural gas and may well be one of the most controversial oil stocks for investors on the market. A label that has nothing to do with its operations, however.

It is still unclear how the growing antipathy between China and the United States will affect America’s natural gas sector, given that CNOOC is China's largest importer of LNG. But as the Biden Administration grapples with some of the geopolitical missteps of the previous administration, Chinese companies, including CNOOC, are likely to breathe freely once again, and it could be a boon for Chinese stocks.

Enbridge (TSX:ENB ) is in a unique position as oil and gas stages its 2021 comeback. As one of the more potentially undervalued companies in the sector, it could be set to win big this year. But that’s only if it can overcome some of the challenges in its path. Most specifically, its Line 3 project which has faced scrutiny from environmentalists.

While this challenge may prove difficult for Enbridge to overcome, the health of the Canadian oil industry is improving, and with it, the outlook for Canadian producers such as Enbridge. The company has already started the year off strong, and if it can continue its momentum, it will likely be able to see a sustained rally in its share price over the course of the year.

Cenovus Energy (TSX:CVE) is most known for its oil business, but it is also actively investing in renewable energy. More importantly, however, is that it has set truly ambitious sustainability goals for itself, aiming to cut emissions by a massive 30% in just 10 years.

This is one of the most actively traded stocks on the TSX. The potential is certainly here for this oil company, so for investors who are bullish on the return of the oil markets, this is a perfect pick in the Canadian market.

Tourmaline Oil Corp (TSX:TOU) is another Canadian resource producer focusing on exploration, production, development and acquisition within Western Canadian Sedimentary Basin. The company is in possession of an extensive undeveloped land position with long-term growth opportunities and a large multi-year drilling inventory. Tourmaline’s strong leadership make the company a promising pick for investors looking to take advantage of the tremendous Canadian oil opportunities which are due for a strong rebound as oil prices inch higher.

By. Chris Davey

**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**

Forward-Looking Statements. Statements contained in this document that are not historical facts are forward-looking statements that involve various risks and uncertainty affecting the business of Recon. All estimates and statements with respect to Recon’s operations, its plans and projections, size of potential oil reserves, comparisons to other oil producing fields, oil prices, recoverable oil, production targets, production and other operating costs and likelihood of oil recoverability are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, including drilling and other exploration activities, timing of reports, development, exploitation and production, geological risks, marketing and transportation, availability of adequate funding, volatility of commodity prices, imprecision of reserve and resource estimates, environmental risks, competition from other producers, government regulation, dates of commencement of production and changes in the regulatory and taxation environment. Actual results may vary materially from the information provided in this document, and there is no representation that the actual results realized in the future will be the same in whole or in part as those presented herein. Other factors that could cause actual results to differ from those contained in the forward-looking statements are also set forth in filings that Recon and its technical analysts have made. We undertake no obligation, except as otherwise required by law, to update these forward-looking statements except as required by law.

Exploration for hydrocarbons is a highly speculative venture necessarily involving substantial risk. Recon's future success will depend on its ability to develop its current properties and on its ability to discover resources that are capable of commercial production. However, there is no assurance that Recon's future exploration and development efforts will result in the discovery or development of commercial accumulations of oil and natural gas. In addition, even if hydrocarbons are discovered, the costs of extracting and delivering the hydrocarbons to market and variations in the market price may render uneconomic any discovered deposit. Geological conditions are variable and unpredictable. Even if production is commenced from a well, the quantity of hydrocarbons produced inevitably will decline over time, and production may be adversely affected or may have to be terminated altogether if Recon encounters unforeseen geological conditions. Adverse climatic conditions at such properties may also hinder Recon's ability to carry on exploration or production activities continuously throughout any given year.

DISCLAIMERS 

ADVERTISEMENT. This communication is not a recommendation to buy or sell securities. Oilprice.com, Advanced Media Solutions Ltd, and their owners, managers, employees, and assigns (collectively, the “Company”) have not been paid by Recon for this article, but has been paid for a promotional campaign in the past and may again be paid in the future. As the Company has been paid and may again be paid in future by Recon for promotional activity, there is a major conflict with our ability to be unbiased, more specifically: 

This communication is for entertainment purposes only. Never invest purely based on our communication. We have not been compensated for this particular article but may in the future be compensated to conduct investor awareness advertising and marketing for TSXV:RECO. Therefore, this communication should be viewed as a commercial advertisement only. We have not investigated the background of the company. Frequently companies profiled in our alerts experience a large increase in volume and share price during the course of investor awareness marketing, which often end as soon as the investor awareness marketing ceases. The information in our communications and on our website has not been independently verified and is not guaranteed to be correct. 

SHARE OWNERSHIP. The owner of Oilprice.com owns shares of this featured company and therefore has an additional incentive to see the featured company’s stock perform well. The owner of Oilprice.com will not notify the market when it decides to buy more or sell shares of this issuer in the market. The owner of Oilprice.com will be buying and selling shares of this issuer for its own profit. This is why we stress that you conduct extensive due diligence as well as seek the advice of your financial advisor or a registered broker-dealer before investing in any securities.  

NOT AN INVESTMENT ADVISOR. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation.

ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment. 

RISK OF INVESTING. Investing is inherently risky. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell securities. No representation is being made that any stock acquisition will or is likely to achieve profits. 

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Top Stories This Week: Gold Reacts to Fed, Rick Rule’s Uranium Stock Advice

Catch up and get informed with this week’s content highlights from Charlotte McLeod, our editorial director.
The post Top Stories This Week: Gold Reacts…

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All eyes were on the US Federal Open Market Committee this week, which shed some light on policy after its two day meeting, held from Tuesday (July 27) to Wednesday (July 28).

“Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy continues to depend on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain” — US Federal Reserve

 

Are You Investing In Gold Yet?

   
What Happened To Gold In Q1? Which Gold Stocks To Watch In 2021?
Exclusive Information You Need To Make An Informed Decision.
 

The Fed indicated that it will leave interest rates unchanged, and will also continue its bond-buying program, although the central bank has now suggested it will start thinking about how to taper.

The reaction from gold was positive, with the yellow metal taking off after the meeting — it spent time above the US$1,830 per ounce mark on Thursday (July 29), although it was back down around US$1,813 at the time of this writing on Friday (July 30) afternoon.

Aside from that, I had the chance to speak this week with veteran investor and speculator Rick Rule. He of course shared his thoughts on gold, but perhaps more importantly gave an update on uranium.

I hadn’t spoken with Rick about uranium since the beginning of 2020, when he told investors not to enter the market unless they could be patient. And patience has indeed been needed in the uranium sector — when asked what’s holding the market back, Rick pointed to Japanese restarts, the same factor he identified in our conversation a year and a half ago. In his opinion, “Everything else is in place.”

Rick remains bullish on uranium for a number of reasons, including the launch of the Sprott Physical Uranium Trust (TSX:U.UN), which he believes will help deal with excess supply. However, he did caution that the juniors have gotten ahead of themselves and are no longer the bargain they once were.

“I think the juniors are substantially ahead of themselves. This doesn’t mean that they don’t have upside when the price of uranium crests through US$50 or US$60 (per pound), which I suspect it will. I’m just suggesting that among the juniors there’s downside as well as upside now” — Rick Rule, investor and speculator

For that reason, he suggested looking at producers, saying his favorites are Kazatomprom (LSE:KAP), China General Nuclear (SZSE:003816) and Cameco (TSX:CCO,NYSE:CCJ).

 

What's On The Horizon For Precious Metals In 2021?

   
Trends, Forecasts, Expert Interviews and more! All The Answers You Need To Make An Informed Decision.
 

The link to the full interview is here, and you won’t want to miss it if you’re interested in Rick’s latest thoughts on gold, uranium and the overall resource sector.

With uranium in mind, we asked our Twitter followers this week if they think uranium juniors or producers provide the most opportunity right now. Respondents were somewhat divided, but by the time the poll closed most of them had given their vote to the juniors.

We’ll be asking another question on Twitter next week, so make sure to follow us @INN_Resource or follow me @Charlotte_McL to share your thoughts.

Finally, in the psychedelics space INN’s Bryan Mc Govern heard from James Halifax of the Psychedelic Investor. James shared his takeaways from the first half of 2021, admitting that there’s been volatility and saying that clinical trial results will be important to watch for.

“If (the trials) come back negative, basically all these companies are going to $0. The entire valuation on them right now is based on the idea these (trials) will be successful” — James Halifax, the Psychedelic Investor

Most psychedelics companies are following in the footsteps of the pharmaceutical industry, where clinical trials are key to advancement. James noted that company valuations are quite high right now due to positive expectations, but so far it’s too soon to tell whether these levels are merited.

Want more YouTube content? Check out our YouTube playlist At Home With INN, which features interviews with experts in the resource space. If there’s someone you’d like to see us interview, please send an email to cmcleod@investingnews.com.

And don’t forget to follow us @INN_Resource for real-time updates! 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

Silver Price Forecast - What Happened And Where Do We Go From Here?

   
Our Jam-Packed FREE Silver Report Highlights Key Insights, Exclusive Interviews And Promising Stock Picks!
   

The post Top Stories This Week: Gold Reacts to Fed, Rick Rule’s Uranium Stock Advice appeared first on Investing News Network.

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Hot Mining Micro Cap Stocks to Watch in August – 3 Names to Know

Mining Micro Cap Stocks Are Popular Right Now, Here’s 3 to Watch

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3 Mining Penny Stocks For Your August Watchlist 

Mining penny stocks have remained some of the hottest stocks for investors to choose from in the last year. Because of the positivity around mining penny stocks, many investors are constantly searching for the best ones to buy. If you’re wondering why the mining industry is attracting so much attention, there are a few reasons to consider. 

For one, many investors turn to mining stocks during times of economic turmoil. These stocks can be a great way to hedge bets against the market as they are often more stable than others. In particular, this relates highly to gold stocks, as gold is considered a safeguard asset. And while there are hundreds of mining penny stocks to choose from, only a handful are truly worth buying. 

[Read More] NFT Penny Stocks to Buy? 3 You Need to Know About in 2021

To understand which, investors need to take a deep dive into the company’s financials and its production results. In addition, it’s worth noting that certain mining stocks can be highly speculative. But, if you’re investing in penny stocks, you likely are a fan of speculation. So, with all of this in mind, let’s take a look at three mining penny stocks to watch in August.

3 Mining Penny Stocks to Watch Right Now 

  1. McEwen Mining Inc. (NYSE: MUX
  2. IAMGOLD Corp. (NYSE: IAG
  3. New Gold Inc. (NYSE: NGD

McEwen Mining Inc. (NYSE: MUX)

McEwen Mining Inc. is a penny stock that explores for, develops, produces, and sells a variety of mineral resources. Primarily McEwen searches for gold, silver, and copper. It owns 100% interest in the El Gallo project, Fenix project, Black Fox mine, and more. It operates properties in the United States, Canada, Argentina, and more.

Because of its wide breadth of land and mining potential, many believe that MUX could have solid forward momentum heading into the future. However, it’s worth noting that investors should follow the overall trajectory of the mining industry to see where MUX stock could be headed.  

[Read More] Best Penny Stocks to Watch As July Ends? 3 For Your List

In mid-July, McEwen released its second-quarter production results for the year. The company’s gold equivalent ounces totaled more than last quarter and more than the same period in 2020. This was positive news for the company and its shareholders and resulted in a spike in value. It’s worth noting that on July 29th, MUX stock shot up by around 5.5% in the market.

Mining stocks often move with the price of metals or materials themselves. However, usually, the moves they make are much smaller than this. Generally, if gold or silver goes up or down in price, it can benefit MUX stock. Keeping this in mind, is MUX stock a contender for your watchlist?

Penny_Stocks_to_Watch_McEwen_Mining_Inc._(MUX_Stock_Chart)

IAMGOLD Corporation (NYSE: IAG)

IAMGOLD Corporation is another mining penny stock that is showing plenty of bullish momentum right now. Similar to MUX, IAG explores, operates, and develops various mineral properties. These properties are located in the Americas and West Africa. Currently, IAMGOLD operates the Westwood mine and the Essakane mine. Both of these present investors with a diverse and potentially profitable gold mining landscape.

On July 22nd, IAMGOLD released its preliminary operating results for the second quarter of the year. In the results, the company brought in an average realized gold price of around $1,745 per ounce. And while production is lower than the previous quarter, this should not be concerning as the amount of gold mined follows the demand for gold itself.

Since the release of these results, IAG stock has gone up in the market. Just 5 days ago, IAG stock was at $2.49 per share on average. Now on July 29th, IAG stock has reached $2.74 per share on average. This significant growth can be attributed to both its operating results and the rising price of gold. So keeping this information in mind, is IAG going to make your penny stocks watchlist?

Penny_Stocks_to_Watch_IAMGOLD_Corporation_(IAG_Stock_Chart)

New Gold Inc. (NYSE: NGD)

New Gold Inc. is a gold mining stock that has shot up by around 5% in the past several days. This is a clear example of the bullishness on the gold industry right now. For some added context, New Gold Inc. is currently developing a large variety of mineral properties. The company searches for gold, silver, and copper deposits at its range of mining operations.

New Gold actively operates 4 different mines that are located in Canada and Mexico. While many gold-focused companies only mine gold, investors like to see diversity. Because NGD mines silver and copper as well, some investors see it as a more diversified play. On July 15th, New Gold reported its second-quarter operational results.

“Our operations continued to advance their primary objectives during the quarter. Rainy River had another solid operational quarter and is positioned to have a stronger second half of production. As we start the third quarter, the mine has now successfully transitioned from focusing on stripping, and we are now seeing a marked improvement in grades through the first half of July.”

President and CEO of NGD, Renaud Adams

This is important for investors to consider as higher production means more potential for profits in the coming future. But, as stated before, investors should stay up to date with the demand for gold and not just on the amount that NGD is producing.

[Read More] This Biotech Stock was Once a Penny Stock but is Now Making Big Moves on the Nasdaq!

In this report, New Gold’s gold equivalent production, gold production, and copper production all grew year over year. Now, investors know the latest from New Gold and how it is performing recently. NGD is another mining penny stock that will often move with the price of gold itself. But, investors should also keep in mind that NGD can be quite speculative due to its low share price and high volume. Keeping all of this in mind, will NGD stock make your list of penny stocks to watch next month?

Penny_Stocks_to_Watch_New_Gold_Inc._(NGD_Stock_Chart)

Mining Penny Stocks Remain Top Choices For Investors 

With so many mining penny stocks to choose from, finding the best ones for your watchlist can be challenging. However, if we consider the differences between the wide range of penny stocks out there such as finances and mining production amounts, it can be easy to see which ones are best. Considering all of this, it’s no wonder that mining penny stocks remain top choices for investors. 

The post Hot Mining Penny Stocks to Watch in August? 3 Names to Know appeared first on Penny Stocks to Buy, Picks, News and Information | PennyStocks.com.

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Europe’s Expensive Climate Club And Its Detractors

Europe’s Expensive Climate Club And Its Detractors

Authored by Tilak Doshi via Forbes.com,

The EU published a whole raft of additional climate…

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Europe's Expensive Climate Club And Its Detractors

Authored by Tilak Doshi via Forbes.com,

The EU published a whole raft of additional climate policies on July 14th with its long-awaited “Fit for 55” package to make Europe carbon neutral by 2050. It included its most contentious plank – the carbon border adjustment mechanism (CBAM).  On July 19th, US Democrat legislators introduced a similar bill to tax imported goods for their carbon content sourced from countries that lack strict environmental policies. Details on the US proposal are scant, with one leading newspaper article stating that the US would “require companies that want to sell steel, iron, and other goods to the United States to pay a price for every ton of carbon dioxide that is emitted during their manufacturing processes. If countries can’t or won’t do that, the United States could impose its own price.”

It would seem that the Nordhaus climate club has become the policy vehicle of choice for advocates of the “climate emergency” on both sides of the Atlantic.

Why The Climate Club

On the face of it, the climate club’s logic is straightforward enough. It is to replace the earlier flawed architectures of the Kyoto Protocol (1997) and the Paris Agreement (2015) which were voluntary international agreements to reduce carbon emissions. To mitigate the problem of ‘free riders’ that inevitably emerge with such agreements, the climate club would establish  an incentive structure that penalized nations that did not play by the rules.

The EU and the US want to impose trade tariffs to bring the cost of carbon-dioxide emissions caused by the manufacture of an imported good into alignment with what a domestic producer would pay to produce the same good. European and American companies are less competitive because they have to pay for their emissions while foreign companies that export to them don’t. Thus rules to reduce emissions will encourage companies in the West to “offshore” their production to developing countries which have less onerous restrictions on emissions, a process known as “carbon leakage”. Brussels and Washington, it is claimed, merely intend to “level the playing field”. Of course the question arises, whose playing field?

The European Commission will initially apply the CBAM to imports from energy intensive sectors including iron and steel, aluminium, cement, fertilisers and electricity, coming into force from January 2026. An analysis by a bank found that Russia, Turkey, Ukraine, India and China will be amongst the most impacted by the CBAM. The complexity of the Brussels-concocted plan ensures that exporters to the EU will have their work cut out for them. Exporting firms will have to document detailed carbon audits on their emissions which would include calculating the percentage of emissions that are already covered by carbon taxes elsewhere (domestic and for imports which go into manufacturing the exports). If these complex and expensive analyses are beyond the compliance capabilities of firms, especially for small and medium-sized businesses, the EC will unilaterally establish carbon tariffs on the basis of the dirtiest 10% of European producers of the same good.

The Climate Club’s Detractors

On July 26th, China opened its first defensive salvo against the EU’s plan to impose the world's first carbon border tax, stating that it intruded climate issues into international trading norms, broke WTO rules and undermined prospects for economic growth. Earlier in April when it became apparent that both the EU and the US Biden administration were considering extra-territorial and unilateral policies to enforce upon the world their own predilections to “fight climate change”, India also adopted a position similar to China’s. It issued a joint statement with the BASIC bloc — Brazil, South Africa, India and China — calling CBAM “discriminatory“ and expressing its “ grave concern”.

Detractors of the climate club – a club which threatens to be both exclusive and punitive for non-members — point out that carbon border taxes are contrary to the UN climate body’s Article 4. This refers to “Common but Differentiated Responsibilities and Respective Capabilities”, an established feature of climate change negotiations since the UN’s first Rio Earth Summit in 1992.

Last week, at the G20 on climate change and energy, India cited this long-standing equitable principle in countering the “net zero by 2050” target backed by the EU, US, the UN climate body and other rich country-dominated multilateral agencies such as the IEA, the World Bank and the IMF. India’s environment minister Bhupender Yadav said that “…given the legitimate need of developing countries to grow, we urge G20 countries to commit to bring down per capita emissions to global average by 2030”.

While the global average is 6.5 tons per capita of CO2-equivalent, India emits just below 2 tons while the US emits 17.6 tons and Germany 10.4 tons. India asserted that as the rich countries have already “consumed” most of the available “carbon space” in the atmospheric sink since the Industrial Revolution, the “net zero by 2050” target is inadequate.  

The detractors are not limited to developing countries. Australia’s Prime Minister Scott Morrison called the proposed carbon tariff plan “trade protection by another name”. Russia, like China, sees the CBAM as running foul of WTO rules and had already made clear its views a year ago when the EU was mooting its Green Deal plans which included carbon tariffs.

Problems With The Climate Club

Apart from the UN climate body’s Article 4, there are areas in which the proposed carbon tariffs may conflict with WTO trading rules. They may be found to contravene the WTO’s rule of non‐discrimination, a mainstay of international trading norms which requires that any advantage granted to the imported products of one WTO member must be accorded immediately and unconditionally to like products originating from all other WTO members. Carbon tariffs could also be inconsistent with the WTO’s ‘ national treatment rule’, another foundation stone of modern international trade under the WTO regime which requires that imported products be given “no less favourable” treatment than that given to like domestic products. If European producers continue to receive free emissions allowances (as they do now under the EU’s Emission Trading System), then the EU will be found in violation of the “national treatment” rule.

It would seem that the putative rich-country climate club members are headed for an impasse with the rest of the world in the rules of international trade that have broadly prevailed since the Second World War. On the one hand, we have somewhat less that 20% of the world’s population represented by policy elites that are convinced that the “science is settled” and a “climate crisis” is upon us. On the other, we have the vast majority of the world’s population – over 6 billion — newly emerged from wretched poverty in recent decades or desperately trying to. For those beginning to enjoy — or at least having a fighting chance to taste — the fruits of economic growth and technological progress across Asia, Africa and Latin America, their worries are less to do with concerns of the carbon footprint of economic growth as much as ensuring that economic growth will re-emerge after the devastation brought on by the Covid pandemic lockdowns.

Democracy Prevails

But there is a final twist. The Western policy elites, convinced by climate models that purportedly predict dire climate conditions decades into the future, seem to be facing the constraints of democracy in their own backyards. After Switzerland dropped its negotiations with the EU, the country rejected a climate-protection law in a referendum last month. The referendum rejected all three parts of the law in separate votes: on CO2, on pesticides, and on drinking water. Two days ago, UK’s Prime Minister Boris Johnson, facing an increasing backlash from constituents over soaring heating costs with his plans to ban gas boilers in British homes in favour of expensive new-fangled heat pumps, delayed his government’s plans by 5 years to 2040.

For Europe, the greatest lesson of mass politics against climate change polices supported by metropolitan elites was the gilet jaune protests that was triggered by fuel taxes. As one acute observer put it, “The French love a good riot, but the political backlash to the French government’s plans to increase carbon taxes on fuel could be a harbinger of what’s to come in countries committed to the global warming crusade”. 

It is no surprise then that a senior economist at Deutsche Bank, one of Europe’s largest banks, warned that for the EU’s Green Deal to succeed, “a certain degree of eco-dictatorship will be necessary”.

The climate club’s detractors have the tide of history on their side.

Tyler Durden Sat, 07/31/2021 - 08:10
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