The coal mining industry is in trouble and the Supreme Court holds the industries fate in its hands. Coal has been suffering for years under the dual attack of environmentalists and low natural gas prices. Environmentalists have been pushing utility companies to stop using coal, while low natural gas prices have led many utilities to switch to that cleaner burning and now cheaper fuel as a power source.
In an effort to please environmentalist supporters after his election to a second term, the Obama Administration put in place what might be a death sentence for coal mining east of the Mississippi river when it chose to push forward with a new set of regulations under the auspices of executive action and the EPA.
The new plan, labeled the Clean Power Act, required very strict environmental controls to limit emissions from power plants. With inaction in Congress, and the Republicans controlling both House and Senate, President Obama directed the EPA to use its authority under the Clean Air Act to propose new regulations. Since that time, 27 states and a battery of industry advocacy organizations have challenged the new plan at the Supreme Court.
Last week that coalition of states and industry asked the Supreme Court to allow them to hold off on implementing the Clean Power Plan until after the Supreme Court has ruled on its legality. The Supreme Court granted a stay on the Clean Power Plan, giving hope to the coal industry and its allies such as Senate Majority leader Mitch McConnell.
McConnell, the Senator from Kentucky is fighting what might be considered a rear-guard action to try and help coal miners in his state, West Virginia, Southeastern Ohio, and Western Pennsylvania. Coal mining is a barely economical business at this point with natural gas having a distinct cost advantage over coal for generation purposes. Neither McConnell nor anyone else can change that. But the Clean Power Plan makes coal consumption for power generation so prohibitively difficult that it would essentially wipe out the last remnants of the industry in Kentucky and West Virginia. (Powder River Basin Coal in Wyoming burns cleaner and may remain around for a while yet.)
McConnell has pretty much single handedly marshalled the support of more than half of all U.S. states to challenge Obama’s actions in court. Now the final decision is very likely to rest with the Supreme Court. Federal appeals courts are still hearing challenges to the plan, and it is possible they will strike it down, but however the Appeals Courts rule, the issue is almost certain to end up before the Highest Court as a proxy for the limits of Executive Actions.
For investors and coal industry execs alike, the next year will likely determine if the industry has a future. If the Clean Power Plan is not struck down, coal is probably finished as a major source of fuel for the future. Even if the plan is eventually struck down, if the legal review process takes too long and most States and companies have already complied with the CPP, it would still mean the end of coal. Coal’s odds are looking long here, but for contrarian investors its possible this is an opportunity.
Michael McDonald Of Oilprice.com
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