In an attempt to further taper down America’s reliance on fossil fuels, the Obama administration unveiled another plan to combat power plant pollution…
It seems that the coal industry is destined to never catch a break so long as Barack Obama remains President.
In his push to do away with dirty fossil fuels in favor of cleaner-burning and renewable energy sources, a large number of coal-fired plants have shut down across the country and have been superseded by natural gas alternatives.
Today, domestic coal accounts for only 38% of electricity generation here in the States – down significantly from 50.8% in 2003.
Yet as tough as it’s gotten for coal, the uphill battle appears to be getting steeper.
The latest proposal from the US Environmental Protection Agency (EPA), if authorized, will mandate that the domestic power sector must cut carbon dioxide emissions by 30% come 2030 from 2005 levels.
Gina McCarthy, EPA administrator, said that between 2020 and 2030, the amount of carbon dioxide the proposal would reduce would be more than double the carbon pollution from the entire US power sector in 2012.
But while the decrease in coal plants will be significant, the states that rely heavily on coal mining are expected to face the biggest challenge ahead.
The Energy Information Administration (EIA) identified the five largest coal producing states and their share of total US coal production:
- Wyoming: 388.34 million tons, 39%
- West Virginia: 112.91 million tons, 11%
- Kentucky: 79.94 million tons, 8%
- Pennsylvania: 54.21 million tons, 6%
- Illinois: 52.12 million tons, 5%
McCarthy says that the plan gives states multiple options to achieve their emission targets, such as improving power plant heat rates; using more natural gas plants; ramping up zero-carbon energy, such as solar or nuclear; and increasing energy efficiency.
In other words, the replacement of coal plants is one of the plan’s overarching objectives.
So much for an “all-the-above” solution.
The US Chamber of Commerce has been a staunch supporter of the coal sector, and has decried the new EPA regulations as a move that comes “with immense costs” and will “put up roadblocks to America’s job creators”.
The National Association of Manufacturers, a strong opponent of the EPA, argues that the emissions plan is a direct threat to its members’ competitiveness.
Even politicians from the big coal states have spoken out against the EPA.
Mitch McConnell of Kentucky, Republican leader in the US Senate, declared the rules as a “dagger to the heart of the middle class” that would damage the economy.
Naturally, coal stocks are getting battered by the EPA’s proposal.
But for those of you who are optimistic about the industry’s ability to thrive, given that coal exports continue to grow, then one depressed coal stock might be worth taking a chance on.
Top Coal Stock To Buy Today:
This stock comes with a warning label, as the sector as a whole is out of favor with investors. There are a lot of headwinds that could keep pushing coal stocks to newer lows in the months ahead.
That being said, the proposed rules from the EPA should technically have little to no impact on Walter Energy’s (NYSE:WLT) business whatsoever.
That’s because WLT exports almost all of its metallurgical coal that it produces.
The Company recently posted an official statement on its site to try and clarify to investors how insignificant the proposal really is to its bottom line:
“Because the rules issued today by EPA are aimed at controlling CO2 emissions from existing domestic power plants, we do not expect the regulation will have any material impact on Walter Energy, Inc. We primarily mine and sell metallurgical grades of coal that are used in making steel, not generating electricity. Approximately 95% of the company’s coal-related revenues come from the export of metallurgical coal.”
What WLT is more concerned with is improving its cash flow.
In response to a $52.6 million operating loss from its Canadian and UK facilities, WLT recently pulled the plug on its Canadian mines and delisted from the Toronto Stock Exchange (TSX).
The decision to idle is likely going to cost WLT between $5 and $10 million each quarter to do so, but it’s clearly the more cost effective solution, as it will immediately improve the Company’s bottom line.
Furthermore, WLT has cut its CapEx to $130 million and also announced the sale of its Blue Creek Coal Terminal for $25 million. By the end of the year, a total of $125 million is expected to be generated from asset sales.
In the short-term, things may be turning around for WLT financially. But with a bearish appetite for the industry as a whole, the market could prove challenging for WLT — despite EPA proposals having a relatively minimal effect on the company.