A New Value-Added Carbon Tax Would Face High Hurdles

Solar stocks popped Tuesday on news that the Trump administration was considering a value-added carbon tax to increase federal revenue. But Axiom Capital’s Gordon Johnson told Benzinga the chance of Congress passing a tax is less than 5 percent.

Raymond James analyst Pavel Molchanov added that he was surprised by the serious thought afforded the tax.

“I remember back in February when Jim Baker and a group of other Republican carbon tax supporters came to the White House, but I have to say, I did not actually think that anything would come of it,” Molchanov told Benzinga.

Still, he’s about as hopeful as Johnson that the proposal will manifest in any solid policy.

Unfavorable Conditions

“Seems to counter what [President Donald] Trump campaigned on — i.e., putting coal miners back to work,” Johnson told Benzinga. “Furthermore, however, and more telling, [former President Barack] Obama tried, unsuccessfully, to get the carbon tax debate started. Keep in mind that lawmakers in the House, during the Obama years, preempted a potential carbon tax proposal by Obama with a bill that” weighed the pitfalls of a carbon emissions tax.

The legislators ultimately voted that such policies were not in the best interest of the United States.

“Thus, to think all of the House GOP members that felt this was bad for American families and businesses would be willing to backtrack is, for lack of a better word, wishful,” Johnson said. “It seems this rally should be faded.”

Molchanov added that, in the face of Republican opposition, a proposed carbon tax would heavily rely on Democratic votes to pass. Nonetheless, the plan could have a friend in Secretary of State Rex Tillerson, who traditionally supported a carbon tax while CEO of Exxon Mobil Corporation XOM.

Regardless of political sentiment, investors reacted to news of the tax plan by purchasing First Solar, Inc. FSLR and SunPower Corporation SPWR and prompting respective spikes of 4.3 percent and 5 percent.

Policy Shifts

While the specifics of the scrutinized plan surprised Molchanov, the shift in White House fiscal policy didn’t.

“I am not surprised that the border adjustment tax idea is gradually moving off the agenda,” he said. “Not entirely ruled out, but given the refining-related complications, plus opposition from major retailers, looks like the White House is thinking about other ideas for revenue-neutral tax reform.”

Brent Slava and Nick Donato contributed reporting.

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