The day after I laid out my case for why the canary in the coal mine isn’t dead yet, The Wall Street Journal published a story indicating the Obama administration is still actively hunting the bird down to kill it, while a separate story from the Associated Press says China is trying to cage it, too.
The EPA is poised to promulgate tough, sweeping new regulations that will effectively stamp out any construction of a coal-fired powered plant in the U.S. Although it allows for them to be built if they include greenhouse gas capture technology, the equipment is so expensive as to make it prohibitive and hasn’t been proven at commercial scale, which effectively kills off the construction of any plants. A second phase of the program that may finally bury the industry — or bankrupt it, as Obama promised when he first ran for president — will kick in next year when rules covering existing plants will come into play.
China, for its part, is trying to control air pollution around its major cities and will ban new coal-fired plants around Beijing, Shanghai, and Guangzhou with an eye toward reducing the country’s dependence on coal to around 65% by 2017. Currently coal accounts for around 68% of China’s energy needs and it would like non-fossil fuels to grow from 9% to 13% of its energy production.
Here at home, utility operator American Electric Power Company, Inc. (NYSE:AEP) would be particularly threatened by the new EPA rules as coal accounted for 71% of its fuel source, even though it’s down from 82% two year ago. The Southern Company (NYSE:SO) has been much more proactive, reducing its reliance upon coal from 58% in 2010 to 38% last year, while bumping up gas from 25% to 42% in 2012.
Even so, I’m not willing to sign the coal industry’s death certificate yet. It may look as if it’s on the brink of disaster, but the EPA previously said it was unlikely any coal-fired plants would be built between now and 2020 anyway. Part of the rationale is the secular decline in natural gas prices brought on by massive amounts of production through innovative drilling techniques such as horizontal drilling and hydraulic fracturing, which the administration is also trying to stymie. So a lot of the ruckus has been already factored into coal stock prices.