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The Supreme Court Saves Coal?

Keith Kohl

Written By Keith Kohl

Posted July 3, 2015

There’s a war happening…

For the last few years, we’ve been caught up in the back-and-forth between two distinct factions.

On one side is President Obama, armed with the Environmental Protection Agency, and on the other side are coal companies, utilities, and most Republican politicians.

Republican Senate Majority Leader Mitch McConnell accuses the president of inciting a “war on coal” whenever he discusses the most recent energy regulation.

And if this is indeed a war, it’s a very one-sided one at that. Take a look at this…

BTUDead

The chart above shows the last five years for shares of Arch Coal (NYSE: ACI) and Peabody Energy (NYSE: BTU), two stalwarts of the coal industry, versus the performance of the S&P 500.

The market at large went up nearly 100% in just five years, while coal stocks dropped by 100%. Peabody, the world’s largest coal company, once traded at nearly $90 per share but now trades for less than $2.

Hey, the company still pays a dividend (of $0.01 per year)… if you like low yields.

But in all seriousness, the dramatic free-fall for Peabody and all other coal companies has been the result of a wave of regulations laid down by Obama and the EPA under the authority of the Clean Air Act.

Utilities and coal producers have to comply with each and every rule, and the only way they can fight against them is through legal action.

But as a case earlier this week showed us, legal action is largely a moot point while the government continues to wage its war.

What a Waste of Time

In the latest salvo between the two sides in the war on coal, it appears as though the coal power industry recorded a victory.

On Monday, in the case Michigan v. EPA, the Supreme Court ruled against EPA regulations on emissions of mercury and other heavy metals from power plants by a vote of 5 to 4.

Scalia

Justice Antonin Scalia issued the majority opinion in the case, and he argued much in the same way others have argued against EPA regulations: “The agency must consider cost — including, most importantly, cost of compliance — before deciding whether regulation is appropriate and necessary.”

Several opponents of the EPA hailed the decision…

Texas Governor Greg Abbott said the ruling was “good news for Texas.”

The state’s Attorney General, Ken Paxton, said the ruling was a “victory in our efforts to rein in an out of control EPA.”

However, if you look closely at the situation, the mercury ruling by the Supreme Court does little to hurt the EPA or any of its regulations against coal.

For one, the rules on carbon emissions from new and existing plants are still intact, and this ruling offers no precedents for future litigation.

Also, Monday’s decision doesn’t actually kill this regulation in any way; it just forces the EPA to rewrite the rules with more attention to cost and benefit, which some estimate as $10 billion in cost versus $80 billion in benefit.

When the rules are rewritten to include cost (this could take years — after all, the EPA is a government agency), it isn’t a stretch to assume they’ll survive the courts.

Even then, these rules are several years old and went into effect in April. By that time, most utilities had either upgraded their facilities in order to comply with the rules or shut down operations as a result, and it is unlikely they will decide to reverse upgrades already in place.

So even though the coal industry technically won a ruling in the highest court in the land, it’s all a waste of time since the damage has been done and the rule will likely remain in effect.

The only real outcome from the case was a brief but powerful spasm of false hope for coal investors…

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A Paroxysm of Exuberance

On Monday, after the ruling was announced, Peabody’s stock rose by nearly 20% as investors flooded in on the hope that the decision was more valuable than it really is.

They were wrong, and they paid for it when the price fell back down to earth.

But other investors should realize that this war on coal doesn’t just kill the industry — it also creates investment opportunities in the industries that replace coal power.

Nuclear energy, in theory, is a good replacement, but the world hates nuclear power because of its risk potential.

The real answer here is natural gas or renewable energy.

In truth, both are good investments: Solar has been one of the best-performing industries of 2015, as costs drop every day, and natural gas is poised to see a historic bull market that will make coal investors green with envy.

Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.

Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.

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