Environmental and regulatory issues
While it’s the cheapest energy source, coal is also the most polluting fossil fuel. Power plants emit harmful pollutants like mercury, arsenic, nickel, and sulfur dioxide into the air. Coal accounted for 19% of overall U.S. energy consumption in 2013. However, it resulted in 32% carbon dioxide emission in the same year. The information was provided in a U.S. Energy Information Administration (or EIA) report.
The U.S. Environmental Protection Agency (or EPA) wants to establish a cleaner environment. It has issued carbon dioxide emission standards. It has also issued mercury and air toxic standards.
The first standard requires new coal-fired power plants to limit carbon dioxide emission to 1,100 pounds of carbon dioxide (or CO2) per megawatt hour (or MWH). New plants will have to reduce uncontrolled carbon dioxide emission by 50% compared to existing plants. They will employ a mechanism called carbon capture sequestration (or CCS). For existing coal-fired power plants, the EPA has proposed rules that require them to cut carbon dioxide emission by 30% by 2030 over 2005 levels.
In CCS, carbon dioxide is captured, compressed, and transported underground using pipelines. The carbon dioxide is stored in rock formations—usually a mile or more beneath the Earth’s surface. This reduces environmental pollution.
CCS can address the coal-fired plants’ emission issue. However, its economic and technological viability is being questioned. There’s added cost to implement CCS. Also, the projected natural gas production growth means that fewer new coal-fired power plants will come online after existing plants retire. The retired coal plants could be replaced by gas-fired plants. It depends on how the price dynamics play out at the time.
The shale gas boom and regulatory issues will cause shares to decrease. Coal demand for electricity generation in the U.S. will also decrease. As a result, American coal producers (KOL) like Cloud Peak Energy (CLD), Arch Coal (ACI), Peabody Energy (BTU), and Alpha Natural Resources (ANR) are looking for export opportunities. As a result, coal producers are watching the coal export infrastructure in the northwest. We’ll discuss this in the next part of the series.