There's a War Going on in the Supreme Court No Energy Company is Safe From

Murray Energy has followed through on its threat to sue the Environmental Protection Agency (EPA) over what the company calls a "war on coal." Arch Coal , however, just lost a pivotal case against the EPA. That could make Murray's move a long shot with more downside risk than upside opportunity for the coal industry, with serious implications that reach across the energy space.

Who's Murray anyway?
Murray Energy is a private coal miner that jumped into the big leagues when it bought mines from CONSOL Energy last year. That $3.5 billion deal allowed CONSOL to shift from a coal miner with some natural gas assets to a natural gas driller with some coal assets. Moreover, it kept its lowest cost and best situated mines. CONSOL is now in a good position to weather the coal downturn and grow along with natural gas demand.

(Source: Wikiwopbop, via Wikimedia Commons)

Although Murray Energy arguably got CONSOL Energy's dregs, the five mines it acquired made it the fifth largest domestic coal miner. Management is using it's new size to make some waves. The biggest wave is taking on the EPA, claiming that the Agency is making rules without considering the employment impact of its rules on the coal industry. Murray says the Clean Air Act requires this, but in her confirmation hearing, EPA Administrator Gina McCarthy stated that the EPA doesn't interpret the Clean Air Act as requiring such considerations.

The carbon plan
The EPA can regulate coal emissions, specific to Murray's case are proposed carbon dioxide limits, but in its own words it must set rules based on the "best system of emission reduction ... adequately demonstrated." The factors it must consider are "feasibility, costs, size of emission reductions and technology." The courts will now be making the call on who's right.

(source: GarciaGerry, via Wikimedia Commons)

However, industry giant Peabody Energy has made its position clear. It stated in a press release on the proposed carbon limits that, "Peabody believes the EPA's plan is outside the realm of the law." Arch Coal weighed in, too, saying, "We believe that coal plants with near-zero greenhouse gas emissions will be achievable in time, but such technology is simply not available today..."

Even Southern Company said it's too soon for the EPA to hold up its Kemper coal plant as an example of carbon capture feasibility. The plant isn't up and running yet and is billions of dollars over budget. Southern Company CEO Thomas Fanning called the Kemper site, "unique." For example, its location allows it to sell the carbon dioxide it captures. That may not be feasible at other plants and was a key aspect in the choice to go ahead with the Kemper investment.

If you lose one, will you lose two?
Clearly Southern Company and all of the coal miners have a vested interest in keeping carbon rules as loose as possible, but that doesn't mean Murray will win the case. And what happens if it loses? Just ask Arch Coal about that one. The company sued the EPA over its use of the Clean Water Act to retroactively cancel a permit for a coal mine. Arch Coal lost when the Supreme Court refused to hear the case.

Essentially, the EPA now has the freedom to stop projects whenever it wants. Even after they have gained approval from other arms of the government or even the EPA itself. If Murray loses its bid to restrain the EPA, there would be no need for Gina McCarthy to "interpret" anything—she could openly and with impunity say the EPA doesn't look at the jobs impact of its decisions. It's hard to say what's worse, having a gray area or knowing for certain by losing the case.

The consequences for the coal industry could be huge. And if jobs don't matter either, there's one less hurdle to overcome when the EPA says no to anything, like say hydraulic fracturing. If you invest in the energy sector, you need to watch and consider the legal precedents being set by these EPA related cases.

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Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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