Trump to stick it to Obama by reversing 2009 finding that climate change is real

The EPA, under the Trump administration, is expected to finalize a rule rescinding the 2009 ‘endangerment finding’ that legally underpins most U.S. greenhouse-gas regulations under the Clean Air Act, including standards for vehicles and power plants. The deregulatory move, pitched as reducing costs and boosting U.S. energy production, substantially alters the regulatory landscape for fossil-fuel, auto, insurance and ESG-sensitive sectors and is likely to prompt immediate legal challenges with material policy and investment ramifications.

Analysis

Market structure: Rescinding the endangerment finding is an explicit regulatory tailwind for integrated oil & gas (XOM, CVX, COP) and midstream names (KMI) because compliance and permitting costs can fall; expect a potential 3–8% EBITDA upside for marginal upstream projects over 6–24 months if capex ramps. Renewable pure-plays and voluntary carbon markets (KRBN) are direct losers as policy uncertainty reduces long-term subsidy visibility and carbon demand; high-multiple green names (PLUG, BLNK) face downside risk to revenue growth assumptions.

Risk assessment: The largest tail risk is successful litigation or state-level preemption that nullifies any practical deregulatory benefit within 3–18 months — this could reverse equity moves by 15–40% for levered names. Immediate market moves (days) will be headline-driven, weeks–months dominated by filings and ETF flows; the structural long-term outcome (years) depends on courts and the 2026 election cycle. Hidden dependency: corporate net‑zero commitments and state rules will blunt federal rollback benefits, creating dispersion across assets.

Trade implications: Tactical alpha comes from long integrated energy and midstream vs short high-valuation green technology. Expect elevated volatility; favor 3–6 month option structures to capture news/litigation outcomes while limiting time decay. Rebalance portfolios toward cash-flow-positive energy and insurance/reinsurance names that reprice catastrophe risk, and underweight pure‑play renewables and carbon-credit exposures until legal clarity (target 60–180 day horizon).

Contrarian angles: Consensus assumes permanent policy shift; history (Reagan-era reversals, court restores) suggests a 30–50% probability of partial reversal within 1–3 years — don’t extrapolate initial move into a multi-year conviction. Also, renewable cost curves and state incentives may preserve demand, so avoid blanket shorts on utilities with regulated renewables (NEE). The biggest mistake would be betting policy eliminates climate risk; insurance and catastrophe-exposed sectors remain vulnerable and can produce separate opportunities.

Key Decisions for Investors

• Establish a 2–3% portfolio long split: XOM (1.2%) and CVX (1.2%) for 3–12 months to capture lower compliance drag; use buy-and-hold but trim 30% if either rises >20% or if a federal court issues an injunction within 90 days.
• Initiate a 1–2% long position in KMI (Kinder Morgan) to play higher midstream throughput; use a 6–12 month horizon and take profits if natural gas basis spreads compress >$0.50/MMBtu or KMI rallies >25%.
• Short 1–2% combined exposure in PLUG and BLNK (split 50/50) targeting overvaluation and policy risk; size to 1–2% and cover if either company reports consecutive quarters of >10% revenue beat or renewables M&A accelerates materially.
• Buy 6-month call spreads on XOM (buy ATM, sell +10% OTM) sized 0.5–1% to capture upside while limiting premium; simultaneously buy 3-month 10% OTM puts on KRBN sized 0.5% as a hedge against carbon‑price collapse following formal rule publication (monitor Federal Register within 30 days).
• Monitor three catalysts and act accordingly: (a) EPA publishes final rule in Federal Register (trigger within 30–60 days) — if published, add 25% to energy longs; (b) D.C. Circuit or Supreme Court filings within 60–180 days — if injunction obtained, close >50% of these positions; (c) state-level legislative responses (NY/CA) within 90 days — if multiple states tighten rules, reduce short renewable exposure by 50%.