Arch Coal Inc (NYSE:ACI) has said that it’s currently impossible for coal plants to run with the near-zero carbon emissions that would be required under a new proposal from the Obama Administration, AP News reports.
Carbon emission standards
Obama’s proposal, which is similar to one announced last year, limits carbon emissions from new plants and sets limits on total national emissions. Existing plants won’t be affected in the short-term, but they will eventually have to reduce emissions, and new coal-powered plants are effectively banned under the proposal. Moving the U.S. away from coal, which currently supplies 40 percent of the nation’s electricity, is one of the goals of the proposal.
Jim O’Shaughnessy: Fear Signals Created By The Reptilian Brain
ValueWalk's Raul Panganiban interviews Jim O’Shaughnessy, Chairman, Co-chief Investment Officer, and Portfolio Manager at O’Shaughnessy Asset Management. In this part, Jim discusses the fear and emotional signals created by the reptilian brain. Q1 2020 hedge fund letters, conferences and more That's very cool. For the factor to try to seek the reason why it works, Read More
Even if new technology is developed for coal plants, they may not be economically competitive under the new rules. Natural gas is already gaining on coal, and it is able to meet the heightened standards as-is. In theory, coal plants can capture carbon dioxide and trap it underground, but it’s prohibitively expensive.
Arch Coal’s take on the new proposal
The new proposal “goes way too far, way too fast,” says Arch Coal Inc (NYSE:ACI) senior vice president Deck Slone, but the truth is that the proposal isn’t meant to push coal in a new direction, it’s meant to push coal out the door.
“The world’s fastest growing economies continue to build their economies on coal,” said Slone. “It makes no sense for the United States—which possesses the world’s largest coal reserves—to erect barrier after barrier to coal use.” But even China, which has been one of the coal industries biggest importers for some time, may have already hit peak consumption and is also trying to move away from the dirty source of energy.
The U.S. coal industry won’t go under for exactly the reasons that Slone named—emerging markets need coal and the US has more of it than anyone else—but it will increasingly be a resource that we ship to other countries and choose not to use ourselves.
If some innovation make carbon trapping less expensive, or if the price of energy spikes, so-called clean coal may simply become a viable option. Until then, U.S. coal companies may have to get used to the idea of selling their goods abroad.