Adios to Clean Power Plan

Last week EPA head Scott Pruitt announced plans to repeal the Clean Power Plan (CPP) that was passed by Congress in 2015 to greenhouse gas emissions from power plants.  The CPP has never taken effect.  After a number of legal filings by state governments and industry groups, the Supreme Court stayed the effective date until court arguments could be completed.  Pruitt’s home state of Oklahoma is among those states taking aim at the CPP. 

Now Pruitt is using his position as a cabinet secretary to leap frog the courts at the same time portraying in public comments the Supreme Court stay as something more like a ruling that the CPP gives the EPA powers it does not have under the U.S. constitution. Pruitt’s argument is that the CPP unfairly ‘takes sides’ against some power sources and promotes other power sources.  Of course, this is not the case.  The CPP simply puts caps on acceptable emissions levels and leaves it up to the states as to where its power comes from.  It is just that coal power plants cannot meet the more stringent greenhouse emissions standards.  There are technologies available that could ‘clean’ coal fuel enough to meet the emissions standards and a number of power generation companies have installed such equipment with success. 

There is a price tag for clean coal technologies and that cuts into the profits of power producers.  Most would much rather move toward other power generation alternatives.  This sends a shiver down the spine of coal producing companies that hear the bell tolling for their demise when they used to hear the phone ring for demand.  Now coal wants special treatment from Pruitt in the form of regulatory relief  -  as in no regulation at all. 

Since the economic consequences of burning dirty coal never need to show up on a coal miner’s balance sheet or income statement, the coal industry is not troubled at all by the high costs of asthma or lost wages from people made sick by greenhouse gas emissions or soot.  Such externalities can just be somebody else problem.  These are facts that at not likely the top-most consideration in any discussion in the Trump administration, which is focused more on appearance than reason.  Donald Trump’s willingness to bend with the wind on any given topic has been in evidence across any number of issues, giving the coal industry with its well-practiced lobbying effort the chance to accomplish what was not likely to be an easy feat in the courts  -  repeal of the CPP.

Investors who understand the high costs of environmental degradation should probably be concerned about this turn of events.  However, it would be a bit premature to celebrate a win for coal.  Returning to those pesky facts that few in the Trump administration probably consider, it is apparent that the fast declining costs for solar and natural gas as power sources are a far greater concern for coal.  See the post on May 19^th “Bull case in Rick Perry’s Grid Study,” which makes clear the coal industry has more to fear than regulation.  It is a matter of free markets over which neither Trump nor Pruitt nor anyone else in the Trump administration have any control.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.