Lights Out: Playing Energy Politics Will Backfire on JPMorgan Chase CEO Jamie Dimon

Tom Borelli
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Posted: Jan 17, 2009 12:01 AM
Lights Out: Playing Energy Politics Will Backfire on JPMorgan Chase CEO Jamie Dimon

BusinessWeek named Jamie Dimon, CEO of JP Morgan Chase, as one of the "Best Managers of 2008" for steering the bank clear of most of the subprime mortgage icebergs that wrecked many of his competitors.

Unfortunately, the managerial skills that enabled Dimon to avoid the worst of the subprime mess are completely missing when it comes to energy policy.

Expressing frustration about U.S. energy policy and its dependence on foreign oil at the Yale University CEO Summit last December, Dimon said, “We need a real energy policy and it’s going to have to include taxing people on energy so that energy costs stay up and people buy smaller cars and smaller homes.”

Speaking on a leadership panel at the Centennial Global Business Summit last October at Harvard University, Dimon also called for higher taxes on energy. He criticized political leaders for lack of leadership “we don’t have the fortitude to tax oil, or to tax BTUs” and he proposed “taxing oil as it's pumped from the ground, rather than simply taxing gasoline at the pump.”

By calling for tax increases on traditional energy sources, Dimon is joining the war against fossil fuels while displaying a textbook description of a limousine liberal.

Most troubling, however, is this: Dimon is using the vast political and financial resources of JPMorgan to bring his energy policy vision to reality.

As the company’s corporate responsibility efforts make clear, JPMorgan is executing both external and internal strategies to raise energy prices by bringing about government-mandated reductions in greenhouse gas emissions.

JPMorgan’s climate change policy commits the company “to advocate that the U.S. government adopt a market-based national policy on greenhouse gas emissions…” and “options include either a cap-and-trade or tax policy to reduce greenhouse gas emissions at the lowest possible cost.”

Putting words into action, at a Senate hearing in 2007 a JPMorgan executive expressed support of a national framework that establishes a cap-and-trade scheme to reduce greenhouse gas emissions.

JPMorgan is also using the financial markets to attack coal – a cheap domestic source of energy. The company joined Citi and Morgan Stanley in signing the so-called Carbon Principles, which are guidelines to evaluate the carbon risk of financing and construction of electricity generation. In this instance, the company is delivering on its promise to “explore the potential financial liabilities of carbon emissions to large direct emitters.”

Essentially, the Carbon Principles – which were designed with global warming alarmist special interest groups such as the Natural Resources Defense Council and Environmental Defense – are intended to discourage the funding of coal-fired power plants.

Let’s also keep in mind that cap-and-trade would raise the cost of using coal and bring about the financial risk of investing in coal-based electricity generation.

Of course, Dimon’s assault on coal is not purely altruistic, but is driven by ‘seeing green in being green.’ JPMorgan recently touted its investment in renewable energy in full-page advertising.

The company says it’s “the leading institutional equity investor in U.S. wind power projects, leading transactions representing approximately 45% of the equity invested in that market from 2003 through 2008” and it “has invested (or committed to invest) a total of $2.4B for its own portfolio in renewable energy transactions.”

Also, the company is a founding member of the New York Mercantile Exchange’s Green Exchange, a trading market for financial derivatives based on environmental emissions such as carbon dioxide.

In the end, Dimon’s energy policy may prove as risky as subprime lending. Raising energy prices during an economic crisis will lead to reduced consumer spending, which will further jeopardize the ability of the bank’s customers to pay for credit card debt and meet mortgage payments.

While Dimon concedes some of the money from energy taxes should be returned to citizens, there is no guarantee the government will provide rebates, especially given the nation’s exploding deficits.

Moreover, playing politics with energy policy could backfire on JPMorgan as the consequences of the reduction in coal use reverberate through the economy. According to Resource Media, $19.2 billion of proposed coal-fired power projects were cancelled in 2008 and just this month, Dynegy, an electricity producer, cancelled a joint venture to build coal plants around the country.

Since coal produces half of our electricity and wind supplies about 1%, America can’t replace coal anytime soon. Moreover, wind power has serious drawbacks - it’s an intermittent source of energy and it requires massive investments in transmission lines to bring electricity from remote areas to cities. It’s far from being ready for prime time.

In reality, the U.S. will be faced with spiking electricity rates and shortages if coal-generated electricity ends without a viable substitute. So whatever gains JPMorgan makes on its investments from the growth of renewable energy will likely be overcome by the devastating effect of electricity shortages on the broader economy.

It seems the major lesson of the current economic crisis has escaped Dimon. Even though JPMorgan avoided the initial wave from the subprime meltdown, the bank’s earnings are being swept away because of the ripple effect of the housing bubble on the entire economy. In the same manner, the economic consequences of anti-global warming regulations such as cap-and-trade will harm all companies – even those being managed by the so-called “best” managers.