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What: Shares of major coal producers Alpha Natural Resources (NYSE:ANR), Peabody Energy (NYSE:BTU), and Arch Coal (NYSE:ACI) all sank more than 4% on Friday after the U.S. Environmental Protection Agency (EPA) proposed stricter requirements for new coal plants and said that it would look into lowering emissions from existing ones.
So what: Under the proposal, new large natural gas-fired turbines would need to meet an emission limit of 1,000 pounds of carbon dioxide per megawatt hour of generation, essentially making it impossible to build plants without the use of carbon capture and storage technology -- a technology that its opponents claim is unproven and expensive. In other words, coal could basically lose its cost advantage over natural gas for electricity generation if the regulations go through, prompting investors to get out of the coal space before that ever happens.
Now what: While the proposed rules won't immediately affect existing plants, the government is actively looking at ways to curb emissions from the existing power plant fleet as well. "Responding to climate change is an urgent public health, safety, national security, and environmental imperative that presents an economic challenge and an economic opportunity," EPA Gina McCarthy said in a testimony before a House energy committee. Of course, with the Market Vectors Coal ETF (NYSE: KOL) now off about 25% from its 52-week highs, much of the worry brought on by the proposed regulations might already be baked into the sector.
Fool contributor Brian Pacampara 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.