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How Did the Clean Air Act Escalate Arch Coal’s Troubles?

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Jan. 19 2016, Updated 1:28 p.m. ET

The myriad regulations

The coal mining industry is one of the most regulated industries in the United States. Coal mining companies such as Arch Coal (ACIIQ) primarily cater to power utilities and steelmakers for their coal demands. Increased environmental scrutiny in power generation and steel production has an indirect impact on coal mining companies.

Power producers have been impacted the most by the following standards under the Clean Air Act (or CAA):

  • Mercury and Air Toxics Standards (or MATS) – aimed at reducing toxic air pollutants
  • Clean Power Plan (or CPP) – aimed at reducing carbon pollution

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MATS: Mercury and Air Toxics Standards

MATS established the emission standards for all hazardous air pollutants (or HAPs) emitted by coal and oil-fired electric utilities with a capacity greater than or equal to 25 MW (megawatts). It’s aimed at utilizing existing technologies to decrease HAP emissions.

CPP: Clean Power Plan

The Clean Power Plan set the first national level carbon emission standards for power plants. It’s aimed at reducing carbon pollution from power plants while maintaining reliable and affordable power supplies.

According to the final version of CPP, best system of emission reduction (or BSER) consists of the following three building blocks:

  1. Building Block 1: reducing the carbon intensity of electricity generation by improving the heat rate of existing coal-fired power plants
  2. Building Block 2: substituting increased electricity generation from lower-emitting existing natural gas plants for reduced generation from higher-emitting coal-fired power plants
  3. Building Block 3: substituting increased electricity generation from new zero-emitting renewable energy sources such as wind and solar for reduced generation from existing coal-fired power plants
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The impact

The enactment of new environmental laws increased the compliance cost of power producers. These laws are designed to gradually shift power production from fossil fuels to cleaner, renewable sources.

Decreased dependence on coal in power generation reduced the domestic demand for coal. Low natural gas prices further worsened the situation for Arch Coal (ACIIQ) and its peers Peabody Energy (BTU), Alpha Natural Resources (ANR), Cloud Peak Energy (CLD), and other major coal (KOL) mining companies.

Moving ahead, the changing regime of environmental laws around the world can have a serious impact on world coal consumption. During the 2015 Paris Climate Conference (or COP21), China assured the world that it would cut greenhouse gas emission by 60% from its coal-fired power plant by 2020. If China implements the plan, there might be a significant decrease in demand for coal from China.

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