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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Can Trump’s Proposal Save The Coal Industry?

Coal

Climate change may not be a significant factor in the decision-making processes of the United States government, according to the White House. As per a directive signed by President Donald Trump, decisions concerning anything from appliance standards to pipeline approvals will be made without considering climate change as largely as has been done in the past.

This directive extends above and beyond the promise made to remove the regulations implemented by the Obama administration. Those measures, such as the blocking of coal leasing and efforts to reduce greenhouse gasses, are likely to be repealed by the White House, as has been discussed for months.

But this directive is much broader. The goal is specifically to reverse the approach taken by President Obama to address climate change. For example, the Obama Administration ordered government agencies to consider climate change in all environmental reviews.

Take, for instance, the Keystone XL pipeline. Any proposal similar to the pipeline was looked at through the lens of climate change. The order from the President Trump will also include a thorough review of the “social cost of carbon,” a metric that supposedly estimates the economic cost of climate change. This metric was coined by the Obama administration, and was promptly used to justify its many regulatory reforms.

Unsurprisingly, fuel-oriented advocacy groups are excited about these comprehensive and broad directives. These groups argue that the regulations set forth by President Obama made it difficult to utilize coal, oil, and natural gas, which harms American competitiveness on the global market. Related: The Upcoming Surge In U.S. Oil Demand Explained In One Chart

Environmentalists, however, argue that the United States has set an international precedent concerning how to deal with climate change and carbon emissions. The leadership of the Obama Administration has encouraged other countries to follow suit. The reversal by President Trump threatens all that progress.

And the international concerns do not stop there. Scientists from the United Kingdom have voiced concerns that Trump’s plan could hamper their research significantly. The U.K. relies on international coordination to progress their agenda. Moreover, climate change analysts in the U.K. rely on U.S. satellite data, which could potentially be cut under this proposal.

Despite refusal from White House staff to elaborate on the plan at this time, it is clear that the directive will enforce policy changes to aid in coal extraction and incentivize its burning.

For example, the directive will undo the Clean Power Plan, an Obama-era Environmental Protection Agency rule that demanded states reduce their use of coal-fired electricity. The same is true for an order from the former administration that blocks new coal-mining rights on federal lands from being sold to producers.

The repeal would also include the end of regulations that limit emissions of methane from the oil industry – specifically regulations that targeted the curtailing of greenhouse gas. Related: Energy Market Deregulation: Be Careful What You Wish For

The President hopes to make good on his promise to reduce the “job-killing” regulations by enforcing these policy changes, specifically those regulations that cost coal miners their jobs. Indeed, the support of these blue collar workers is what helped drive him to victory. However, analysts and pundits have criticized his actions, citing the fact that the changes will not have any impact on mining jobs, nor will it make coal more prominent.

Moreover, coal producers showed little interest in adding federal coal reserves to their platforms even before President Obama imposed the moratorium. The fact is that utilities have been increasingly turning towards natural gas and away from coal for a while.

However, the repeal by President Trump could put a pause on coal’s decline – this in turn would hinder growth prospects for natural gas. Whether or not the new administration goes through with this repeal remains to be seen.

By Michael McDonald for Oilprice.com

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  • Greg Joshner on March 26 2017 said:
    If the question is, if Trump can save the coal industry, the answer is clearly "No". Coal started dying long before Obama and will be largely dead within the next decade. Natural gas, solar + wind are just getting way too cheap way too fast. Any new coal plant built today is a total waste of money. Keeping existing plants running is viable until the alternatives including their cost of capital for new construction are cheaper than the running costs of coal.

    So in my eyes the only two things that could prolong the life of coal is either a) a flat out prohibition of natural gas, wind and solar (if the competition is forbidden, no need to worry about it) or b) immensely high interest rates that increase the costs for new wind, gas or solar installations.

    But coal is dead. Any investor who sinks money into coal can't be helped. And any young lad who choses a career in coal better saddle up rough ride.
  • Dave Hrivnak on March 27 2017 said:
    I agree with Greg coal is dying a rapid death and that is good for those of us not mining coal. Fortunately there are better alternatives more people work in solar than in coal and gas combined. It is time that the Republicans wake up to the new reality.

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