How Will Obama's New Climate Change Initiative Affect the Coal Industry?

The EPA's proposed plan to reduce emissions does not go above and beyond where economics were already leading us

Jun 6, 2014 at 11:27AM

Last Monday, the Obama administration and the EPA announced the most comprehensive regulations yet addressing the production of greenhouse gases like carbon dioxide. The proposal itself is 645 pages of legal and environmental jargon, so discussion so far has revolved around sound bites and headlines. The talking points tell us that the proposal will reduce greenhouse gas emissions by 30% by 2030, and that the regulations take aim squarely at fossil fuel use, with coal the biggest target in the crosshairs. But are these proposed rules as fearsome as they look?

So far, coal interests have reacted with outrage. The nation's largest coal producer, Peabody Energy Corporation (NYSE:BTU), issued a statement accusing the policy of hurting the poor, ignoring "energy poverty," and costing each American household thousands of dollars. In the face of such a dramatic escalation of the "war on coal," Peabody Energy's stock price ... edged up since the announcement. That's because the truth is that the industry and investors knew some kind of regulation was coming, and the Obama administration's plan was seen as more accommodating, to the relief of industry insiders.

Inside the plan

First, the plan does not intend to lower all American greenhouse gas emissions, just American greenhouse gas emissions from power plants. Electricity generation from power plants is the nation's largest source of greenhouse gas emissions, but this sector still only accounted for about 32% of total emissions in 2012.Advocating a slight reduction in one third of the nation's greenhouse gas emissions could be considered a start, but it's far from a comprehensive plan.

Second, the commonly touted figure of lowering greenhouse gas emissions "30% by 2030" is somewhat misleading. The program doesn't seek to lower greenhouse gas emissions 30% from today's levels, but from 2005 levels, which were much higher. Nationwide, greenhouse gas emissions from electricity generation have fallen from 2,430 million metric tons of carbon dioxide equivalent in 2005 to just 2,088 in 2012, the last year for which full data is available. That's about a 14% reduction in greenhouse gas emissions from power plants, meaning that we were almost halfway to the EPA's goal before the agency even announced it!

American greenhouse gas emissions from electricity have been falling without government regulation for two big reasons: the economy and natural gas. The period between 2005 and 2012 of course spanned the biggest recession in recent memory, and during recessions people demand less of everything, including electricity. We're climbing out of recession, however, and indeed the EPA estimates that 2013 and 2014 will both see slight increases in greenhouse gas emissions on the back of stronger demand for electricity.

The swing to gas

Longer-term, however, coal-fired power plants are giving way to natural gas plants, thanks to the abundance and low price of natural gas brought on by the hydraulic fracturing boom in North America. Industry itself is looking to natural gas for the future, not coal. In 2005, coal provided about 50% of all electricity generation, but that ratio fell to just 37% by 2012.  This trend should continue without regulation, as the median American coal plant is spoiling for retirement at over 45 years old, according to Climate Progress.

The age of the coal fleet is a boon for climate hawks, because our oldest, least efficient coal plants are also our most egregious emitters. For the past few years, retired coal capacity has been replaced primarily by natural gas, and that's also good for the greens. Burning natural gas emits about half the greenhouse gases emitted by burning coal. With much of the coal fleet headed for retirement over the nest 15 years, and the replacements virtually guaranteed to be less greenhouse gas intensive, economics if nothing else indicates that the U.S. will hit Obama's power plant greenhouse gas emissions targets. Remember, we're already halfway there, without even trying.

So why issue regulations? It certainly couldn't hurt politically: 70% of Americans support curbing greenhouse gas emissions.  Democrats were never counting on the support of the 30% of the population who oppose greenhouse gas regulation. By endorsing regulation explicitly to curb climate change, the Obama administration has energized environmentalists without alienating a moderate constituency.

Countercharges that such regulations will inflame moderates by increasing energy bills should likely fail, as energy prices are complex and influenced far more by mundane things like weather and production than they are by the EPA's multi-decade plan. If the proposal does indeed raise energy prices, it's unlikely that many consumers would even notice. With the new regulatory proposals, it looks to this commenter that the president has chalked up a political win without making a significant difference on climate change.

Do you know this energy tax "loophole"?

You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Daniel Ferry has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers