Source: Tennessee Valley Authority/Flickr.

All good things must come to an end, but luckily, so, too, must bad things with good intentions that weren't thought all the way through.

That's the case for the beleaguered FutureGen 2.0 project that sought to retrofit an idled 65-year-old coal power plant with 21st century carbon capture and storage, or CCS, technology. It was supposed to create the blueprint that would have allowed coal power plants to avoid over 90% of their carbon dioxide emissions. But the $1.65 billion carbon capture and sequestration project is no more after the U.S. Department of Energy pulled $1 billion in federal funding, representing 60% of the total cost of the project.

This is a great development for taxpayers, especially considering the project was likely doomed from the start, as I recently explained. Now the DOE has an extra $1 billion to invest in projects with higher potential returns. At the same time, this is a devastating blow to the FutureGen Alliance, which comprised coal suppliers such as Alpha Natural Resources (NYSE: ANR) and Peabody Energy Corporation (OTC:BTU), power companies, and the DOE working together to utilize America's vast coal reserves while mitigating their environmental impacts.

Investors are stuck in the middle, pondering if this is good news or bad news. What does the failure of this project mean for investors who were hoping it would be the saving grace for coal stocks?

Good idea, bad approach
Reducing an industrial facility's carbon dioxide emissions requires two steps: (1) capturing and purifying carbon dioxide and (2) putting it somewhere not named "the atmosphere" for a very long time. FutureGen 2.0 nailed the first step, but fell flat on the most important processes involving sequestration. 

Consider that the equipment for combusting the coal and capturing the carbon dioxide emitted from the power plant came with a price tag of $450 million. That's relatively expensive for just 229 MW of power capacity, but the figure was dwarfed by the $1.2 billion capital cost required for storage. The idea was to build a 30-mile pipeline that would carry 1.1 million metric tons of purified carbon dioxide per year for long-term disposal in an underground rock formation.

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You can probably see the problem with that. The cost for the technology in "Step 1: Capture" is likely to come down with further engineering improvements. On the other hand, the cost of the infrastructure required for geological storage is less likely to see cost reductions. We're already pretty good at building pipelines, but the need to run them through towns and farmland ensures they won't become any less expensive.

In other words, the failure of FutureGen 2.0 should be seen as a positive for investors. Alpha Natural Resources and Peabody Energy were never on the hook for capital costs associated with the project, but it could have given the pair false confidence in the approach and led to poor investments of their own in the long run. Now the companies -- and the FutureGen Alliance, if it survives -- get the opportunity to revisit the drawing board to find more robust storage solutions.

They do exist. In fact, one promising approach seeks to sequester carbon dioxide not in geological repositories, but instead in everyday products ranging from baby diapers to car tires, food ingredients to food packaging. Waste carbon manufacturing platforms could even make coal one of the cleanest, most valuable energy resources in the world.

What does it mean for investors?
While CCS technology continues to provide a sliver of hope for the struggling global coal industry, the high costs of implementing systems capable of avoiding carbon dioxide emissions through geological storage make that specific sequestration approach quite unrealistic. Hopefully, the FutureGen Alliance or broader coal and power industries turn the failure into a valuable learning experience and leverage the opportunity to invest in more lucrative solutions.

Unfortunately, with or without FutureGen 2.0, coal stocks such as Alpha Natural Resources and Peabody Energy remain a dangerous value trap for investors, which is especially true given the uphill battle coal power faces as the world seeks to punish carbon dioxide emitters. Stay on the sidelines -- and don't think about coming onto the field unless a game-changing event occurs.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.