Will Obama Put Coal out of Business?

In 2008, candidate Barack Obama infamously said that as president he would set policy that would bankrupt the coal industry: "So if somebody wants to build a coal-powered plant, they can; it's just that it will bankrupt them because they're going to be charged a huge sum for all that greenhouse gas that's being emitted."

The coming collapse
Now, according to a new Duke University study, pending regulations by President Obama's Environmental Protection Agency may just accomplish that goal. It concluded that tougher air-quality standards would make two-thirds of the nation's coal-fired power plants more expensive to operate than comparable natural-gas-fired facilities. And if the price of natural gas soared four times higher than what it currently trades for, the costs of operation between the two systems would simply be comparable.

The coal industry is already in an untenable situation as utilities shut down coal-fired plants. The Energy Information Administration says over the last year alone, the net generation of energy by coal producers fell 12% while natural gas soared 21%. During President Obama's tenure, coal generation has fallen by 25% while gas is up 39%.

Of course, not all the blame can be laid at the door of the Oval Office as greater shale production through new and innovative drilling techniques, like horizontal drilling, have caused gas prices to tumble during that time period. That alone has made it a resource that is more competitive with coal even as the older, inefficient plants continued to be taken off line.

Padlocking the front gate
Yet it can't be denied that the demise of many plants has been hastened by the animus against the coal industry. In 2012 alone, Duke Energy (NYSE: DUK  ) retired eight coal plants representing 730 megawatts of capacity and Dominion (NYSE: D  ) took down nine, eliminating 1.1 gigawatts of capacity. FirstEnergy (NYSE: FE  ) idled three for 500 megawatts. SourceWatch says two dozen plants will be retired in 2013 representing 2.9 gigawatts of capacity with nearly 50 plants expected to close next year totaling seven gigawatts of capacity. 

That's odd because the researchers found that only 9% of coal-fired plants today are more costly to operate than natural-gas-fired ones. Something's moving against coal and it's clear the new EPA regulations will dramatically tilt the scales in favor of gas. This is despite emissions dropping steadily over the years to their lowest levels since 1992.

Yet as the university study concluded, reductions in emissions in the U.S. will likely be exceeded elsewhere in the world because China is still forging ahead. As Obama noted in his first campaign, China is building a new coal-fired plant a day, which may be the only thing that saves the industry.

Peabody Energy  (NYSE: BTU  ) realizes 25% of its revenues from Asia (up from 18% the year before) while earlier this year Consol Energy completed the largest shipment ever of metallurgical coal to China.

Deep, dark hole
With coal consumption and production in the U.S. on the decline, miners are abandoning the industry en masse. Rio Tinto (NYSE: RIO  ) and BHP Billiton have made plans to exit coal mining which has affected the earnings of mining equipment manufacturers like Caterpillar and Joy Global

When these new EPA regulations take effect and their impact is felt in the coal industry, the reverberations will be like a mine collapse, as miners go bankrupt and jobs are lost. We are witness to the last gasps of a domestic coal industry that's laid out on its deathbed.

Canary in a coal mine
The coal industry in the United States has been in a state of flux since the arrival of a cheaper alternative for energy production: natural gas. Exports are becoming a much bigger part of the domestic coal landscape, and Peabody Energy has deals in place to get its cheaper coal from the Powder River and Illinois basins to India, China, and the EU. For investors looking to capitalize on a rebound in the U.S. coal market, The Motley Fool has authored a special new premium report detailing exactly why Peabody Energy is perhaps most worthy of your consideration. Don't miss out on this invaluable resource -- simply click here now to claim your copy today.


Read/Post Comments (5) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 10, 2013, at 9:05 AM, Paulson545 wrote:

    When Americans see their heating bills triple over the next few years democrats will be swept out of office by the boatload. Since obama took office the price of gasoline went from $1.84 to over $4.00 a gallon. Americans will only take so much before they react by handing the Republicans the White House , Senate and Congress along with a lot of state governorships.

  • Report this Comment On April 10, 2013, at 9:11 AM, CluckChicken wrote:

    Even without the EPA coal plants are more expensive and difficult to build over gas ones. Coal plants require twice the space and access to a rail line. That doesn't even take into consideration trying to convince the local residents that it is good to have a coal plant nearby.

    Gas plants are easier to make as gas/oil hybrid as well as scale up.

  • Report this Comment On April 10, 2013, at 9:15 AM, CluckChicken wrote:

    "Since obama took office the price of gasoline went from $1.84 to over $4.00 a gallon. "

    Making up numbers does nobody any good. In 2007 gas prices were around $3 and this morning I got gas for $3.39. Sure it is higher but not the double you say.

    Page 5 of this report is very good:

    http://www.atg.wa.gov/uploadedFiles/Another/Safeguarding_Con...

  • Report this Comment On April 10, 2013, at 4:11 PM, dafacai wrote:

    poor written articles. anyone who is serious about coal investment should read papers in Seeking Alpha site. Motley fool is not a good place to ....

  • Report this Comment On April 11, 2013, at 8:50 PM, drseusphd wrote:

    Dirty Coal, Radioactive Nuclear, Water Polluting Gas Fraking, Oil Spills its all good

    Pick your poison... I don't think you can bet on or against what type of energy is being used to create electricity. There are enough Government regulations to go around.... I am not judging them I am actually for clean air and water at the expense of higher cost, I am just saying I don't think that it is predictable which is worse from an investment stand point.

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