The Impact of New EPA Restrictions on Coal Stocks

The Environmental Protection Agency announced new restrictions on carbon dioxide emissions from new power plants that would all but eliminate the construction of new coal-fired power plants. It represents the first effort by the EPA to restrict greenhouse gases and could represent a major shift in American energy policy for the future.

Ruling Immediately Controversial

The new ruling from the EPA is already receiving criticism and consternation from congressional Republicans and industry leaders, while Democrats and some environmentalists are viewing it as a major victory and applauding the move by the Obama Administration. The new rule, which will only apply to new power plants and won’t affect existing power plants or those currently under construction, limits carbon emissions for power plants to 1,000 lbs of carbon dioxide for every megawatt of energy produced. Most natural gas plants have emissions of about 800 to 850 lbs of carbon dioxide per megawatt, meaning that they would most likely fall outside the regulation. The regulation, though, would eliminate the construction of any new coal-fired plants, which emit an average of more than 1,700 lbs of carbon dioxide per megawatt generated.

“Today we’re taking a common-sense step to reduce pollution in our air, protect the planet for our children, and move us into a new era of American energy,” EPA Administrator Lisa P. Jackson said in a statement.

The new rule has no shortage of critics, though. Advocates for the coal industry were among the loudest voices criticizing the move.

“It’s basically a deliberate attempt to drive coal out of the marketplace by setting a standard that no coal plant can reach,” said Luke Popovich, a spokesman for the National Mining Association. “Contrary to the administration statement, there is no commercially available technology that would enable a coal plant to meet that standard, and they know that.”

Republicans also voiced strong criticism for the regulation, arguing that it could increase energy costs for Americans and hurting the growth of the coal industry in a struggling economy.

“We were successful in stopping their job-killing agenda through legislation when we defeated cap-and-trade. Now our fight is to stop them from forcing it on the American people through regulations,” said Republican Senator James M. Inhofe of Oklahoma.

Environmental groups were also guarded in their praise, applauding the move while also speaking to the need to go further by regulating already operating plants.

“Moving forward, it will be important for EPA to address carbon emissions for existing power plants as well,” said Kevin Kennedy, the U.S. climate director for research group the World Resources Institute. “Existing plants represent a significant opportunity to improve efficiency and reduce U.S. greenhouse gas emissions.”

Market May Have Already Spoken

Other critics of the move pointed out that it may be entirely unnecessary as the market already appears to be shifting to natural gas because of shifting costs. The Energy Information Administration estimates that only one 900-megawatt coal-fired power plant will be built in the next 20 years as lower natural gas costs offer much more attractive sources of electricity.

“The message here is it’s not costing jobs; the market has already shifted,” said Ned Helme, president of the Center for Clean Air Policy. “It’s simply a shift from a dirtier fuel to a cleaner fuel.”

Coal Stocks Down

News of the new regulation saw coal stocks lose ground across the industry. Arch Coal (ACI) was off 1.40 percent on Tuesday, Peabody Energy (BTU) was off 1.81 percent, Alliance Resource Partners (ARLP) dropped 1.46 percent, and Alpha Natural Resources (ANR) lost 1.02 percent.