Why Coal Stocks Are Having a Very Bad Day
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of major coal producers Alpha Natural Resources , Peabody Energy , and Arch Coal all sank more than 4% on Friday after the U.S. Environmental Protection Agency (EPA) proposed stricter requirements for new coal plants and said that it would look into lowering emissions from existing ones.
So what: Under the proposal, new large natural gas-fired turbines would need to meet an emission limit of 1,000 pounds of carbon dioxide per megawatt hour of generation, essentially making it impossible to build plants without the use of carbon capture and storage technology -- a technology that its opponents claim is unproven and expensive. In other words, coal could basically lose its cost advantage over natural gas for electricity generation if the regulations go through, prompting investors to get out of the coal space before that ever happens.
Now what: While the proposed rules won't immediately affect existing plants, the government is actively looking at ways to curb emissions from the existing power plant fleet as well. "Responding to climate change is an urgent public health, safety, national security, and environmental imperative that presents an economic challenge and an economic opportunity," EPA Gina McCarthy said in a testimony before a House energy committee. Of course, with the Market Vectors Coal ETF (NYSE: KOL) now off about 25% from its 52-week highs, much of the worry brought on by the proposed regulations might already be baked into the sector.
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The article Why Coal Stocks Are Having a Very Bad Day originally appeared on Fool.com.
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