Is President Obama trying to kill the U.S. coal industry? In a recent campaign swing through southwestern Virginia, Republican lawmakers alleged just that.
With executives from coal miner Alpha Natural Resources (ANR) and electric utilities Dominion Resources (D) and PPL (PPL) in tow, Republicans marched through the crucial swing state last week, arguing that new greenhouse gas regulations promoted by the Environmental Protection Agency would effectively ban the construction of new coal-fired power plants in the state -- by making it prohibitively expensive to build them.
Specifically, the EPA is proposing that new coal plants include "carbon-capture" technology that industry representatives say is "not cost-effective under current market conditions" and may not even help reduce carbon emissions at all. Competing fuels like natural gas not only cost less than coal, but emit about half the carbon that burning coal does. Combine this with the low prices (and lower profits) that coal companies get these days -- which don't yield enough revenue to pay for the EPA's required equipment -- and coal promoters argue that it's effectively impossible both to comply with regulations and stay in business.
The result: Coal plants cannot be built. Coal will not be bought. Coal companies will go out of business.
A Prophecy Fulfilled
It probably didn't hurt their argument that earlier this month, we saw the first high-profile U.S. coal company bankruptcy when Patriot Coal (PCXCQ.PK) filed for Chapter 11.
The headlines practically wrote themselves: "Tragedy Strikes as Obama Regs Kill Patriot!" Over the weekend, the President told local television audiences, "If we win Virginia, then we will win the election." But even if the reverse isn't necessarily true, it almost seems as if the EPA set out to write a connect-the-dots puzzle -- and the prize for completing it is kicking its own boss out of the White House.
What Does It Mean to You?
So the new EPA regs may be hard on Obama's chances in coal country. But what does this whole sooty brouhaha mean to folks here on Main Street? As with so many things in life, it's a tale of good news and bad news.
You see, one of the reasons coal is so cheap right now is that natural gas is cheaper. Thanks to the fracking craze that's sweeping our nation faster than the hula hoop, natural-gas prices are close to historic lows. It's simple economics: As gas gets easier to obtain from underground shale formations, the supply rises, and the cost plunges. This undercuts the cost of more expensive-to-extract fuels such as coal and oil -- and nuclear, solar, geothermal and wind as well.
But here's the thing: The energy ecosystem is deeply interconnected. Part of the reason coal prices are low is because of the pressure from competing cheap natural gas. But if you kill King Coal (which accounts for about one-third of electricity production today), then suddenly natural gas has to carry more of the load. Demand for it increases relative to supply, and gas prices rise.
For that matter, even if the coal industry fails to just roll over and die -- even if just a handful of coal companies go bankrupt from higher regulatory costs -- this too raises the cost of gas and power in general. It's only a matter of degrees (pun intended), because even if coal remains an energy option, its supply is still dropping, and its ability to compete with gas declines accordingly.
Simply put, for natural gas prices to remain cheap, coal has to stick around to compete with it -- which won't happen if coal companies start shutting down.
That said, there is a silver lining to all this.
If the EPA regulations come into force and coal companies go out of business, they won't be polluting the air anymore or contributing to climate change. And if it turns out that the coal companies are exaggerating the dangers to their industry and can remain in business under the new regulations and produce cleaner power, then greenhouse gas emissions will be reduced that way as well.
Is that prospect worth paying a little (or a lot) more for your electric bill? Tell us what you think below.
Motley Fool contributor Rich Smith holds no position in any company mentioned, but Motley Fool newsletter services have recommended buying shares of Dominion Resources.