Carman: War and hostility toward renewables deliver huge profits for Trump’s big funders

$18 billion: the oil & gas industry reportedly received $18B in tax incentives last year as the administration rolled back EV mandates, weakened fuel-efficiency rules, cut clean-energy support, and reversed EPA findings on greenhouse gases—policies that boost fossil-fuel profitability and hinder renewables. The piece cites a nearly $1B payment to stop an East Coast wind project, an $80M/year order to keep the aging Craig 1 coal plant operating, and gasoline above $4/gal, all of which are driving upward analyst profit revisions for oil stocks while creating sector-level winners and long-term macro and climate risks.

Analysis

Federal-level interventions that prop high marginal-cost thermal generation create an asymmetric pricing shock: in constrained regions forced thermal dispatch can raise system marginal costs by an incremental $15–40/MWh versus market clearing levels, materially compressing renewable producers’ revenue through increased curtailments and negative-price hours. That mechanism benefits fee-for-service midstream and merchant hydrocarbon producers (who capture margin on every incremental $/bbl) while accelerating cash-flow stress for merchant coal and uncontracted renewable buildouts that rely on high utilization to reach project IRRs.

Regulatory whipsaw is the dominant near-term volatility driver. Litigation, state-level preemption, and procurement mandates can reverse or blunt federal moves within weeks-to-months, creating binary re-pricing events: court injunctions or state procurement auctions will be catalysts that can swing sector valuations 10–30% quickly. Political cycles raise the odds of episodic interventions but do not erase the underlying capital-cost gap between thermal and renewables.

Over a multi-year horizon the economics still favor capital chasing low-LCOE generation and storage; however, the current policy tilt produces two second-order effects worth exploiting — (1) a temporary re-rating of cash-flow-stable midstream/tolling assets and integrated oil majors, and (2) a compression and optionality value gap in under-contracted renewable developers and battery-storage firms that will survive policy swings. Position sizing should reflect that many of the policy advantages for high-cost thermal are transient, creating asymmetric trade windows rather than permanent structural wins.

Key Decisions for Investors

• Pair trade (6–18 months): Long KMI (Kinder Morgan) 6–12 month outright position, funded by a modest short of BTU (Peabody) or the KOL coal ETF. Rationale: midstream tolling cash flows should benefit from higher hydrocarbon flows with lower downside vs structurally challenged coal; target 15–25% upside on KMI vs 30–50% downside thesis on coal. Tail risk: temporary capacity payments could blunt coal weakness (loss scenario ~20%).
• Directional oil hedge/spec: Buy a 3–6 month XOM call spread (bull call spread) to capture upside from episodic geopolitical risk in oil; set strikes to target 2–3x payoff vs premium paid. Use this as a tactical portfolio hedge (cost ~2–4% of notional) with clear cut-loss at premium paid.
• Short opportunistic (6–12 months): Short select merchant coal equities (e.g., BTU) or a small position in KOL. Thesis: forced short-term support for coal is unlikely to change secular capex trends; expect 30–50% downside if market access and capital costs remain elevated. Risk: policy extends support longer than modeled — cap losses to 15–25% should be tolerated.
• Contrarian long (12–36 months): Buy regulated/state-backed renewable / storage exposure (NEE, AES) on pullbacks of 10–20%. Rationale: state mandates and economics will re-accelerate contracted buildouts; upside asymmetry 2:1+ over 12–36 months as curtailment economics improve with storage deployments.