What: Shares of Peabody Energy Corporation (NYSE:BTU) dropped nearly double digits by early-afternoon trading on Monday. Today's drop is largely being fueled by another coal company going bankrupt, with worries that even more will follow as President Barack Obama is unveiling a tougher climate change plan.
So what: Another major coal producer filed for bankruptcy protection today, which marks the second bankruptcy filing of a major coal producer this year. There are growing worries that more will follow, including Peabody Energy, if the coal market doesn't begin to show signs of improvement.
That said, one of the hindrances of an improvement in the coal market is the growing environmental obstacles in the U.S. due to climate change policies. Those policies would become even tougher under Obama's final version of his revised Clean Power Plan. The revised plan will seek to slash carbon emissions from power plants by 32% from the 2005 level by 2030. Given that coal-fired power plants are the greatest contributors to carbon emissions from the power sector, more coal plants will likely be retired, which will only further mute coal demand.
Peabody Energy actually came out firing against the proposed plan by issuing a press release urging action to turn back the EPA's rules to reduce carbon emission from power plants. Peabody said that these rules are causing "pain at the plug" for American consumers, as it's forcing them to buy more expensive power from renewables, which is driving electricity prices to new record highs.
Now what: Peabody Energy is facing a real uphill battle. Not only does the company have its own mountain of debt to overcome, but additional regulations are piling up in the coal market, making it much harder for that fuel to compete. That's leading to a very bleak outlook for Peabody Energy and its coal-producing peers.
Matt DiLallo 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.