28 june 2013

Obama speech: carbon and coal

Financial Times, June 25, 2013

The market not the president is leading the attack on coal

US President Barack Obama’s opponents have labelled his latest efforts to cut carbon dioxide emissions as a “war on coal”. This is both predicable and deceptive. The leader of the attack on coal is not the president but the free market. As his enemies like to say in other contexts, Mr Obama is “leading from behind”.

On Monday, the Stowe global coal index of coal mining shares fell 4 per cent, anticipating that the president would call for carbon emission standards for existing power plants (rules for new plants had previously been drafted). A bad fall – but the index is already down 24 per cent over the previous 12 months.

With natural gas prices plummeting on the fracking revolution, burning coal to generate electricity just makes less sense. Power producers are adapting to market forces and regulation by shifting coal plants to run on gas or building new gas-fired plants. Because natural gas is half as carbon-intensive as coal, this has been a boon to the environment. US energy-related carbon emissions in 2012 have dropped to their lowest level since 1994.

But the ascendancy of natural gas has not buried coal just yet. Coal still comprised 38 per cent of power production in April, 12 percentage points more than gas. And the free market being what it is, natural gas prices have edged up recently. But the new emission standards could further undermine US coal demand, and wrench the economies of the Appalachian states and Wyoming. There are always exports, but transport infrastructure and trade restrictions are significant barriers.

This raises another point: carbon emissions do not respect borders. With China consuming four times the amount of coal that the US does, Mr Obama will need to coax the rest of the world to adopt his greener vision for there to be any meaningful benefit. Now that would be leading from the front.


Obama's climate speech rounds out bad week for U.S. coal industry

Nathanael Massey, E&E reporter , friday, June 28, 2013

It's been a rough week for coal markets. In the midst of an overall market slide, the Supreme Court announced Monday that it would reconsider U.S. EPA's Cross-State Air Pollution Rule, just as Goldman Sachs was revising down its forecast for Chinese coal imports.

And then on Tuesday came President Obama's speech on climate change.

"Right now, there are no federal limits to the amount of carbon pollution that [power] plants can pump into our air. None. Zero," Obama said. "We limit the amount of toxic chemicals like mercury and sulfur ... but power plants can still dump unlimited amounts of carbon pollution into the air for free."

The air pollution standards Obama called for could essentially render new coal-fired power plants infeasible, both opponents and proponents of the resource say. With the existing fleet aging toward mandatory retirement -- the average age of plants not already slated for retirement is 40 years -- U.S. coal consumption has settled into a steady downward trend.

The markets have responded in kind. After years of contraction, coal stocks took a nosedive Monday, with shares for two of the biggest coal mining companies, Peabody Energy Corp. and Alpha Natural Resources Inc., falling 7 percent and 8 percent, respectively. One mining company, Walter Energy Inc., saw its stock drop 16 percent, capping off an eye-popping 75 percent slide over the past year.

The president's speech was followed by more of the same: Stock for both Peabody and Alpha dropped 8 percent, while mining giant Arch Coal Inc. saw its stocks drop by 6 percent.

While it would be impossible to estimate just how much Obama's proposition contributed to the slide in prices, it was almost certainly a compounding factor, said Anthony Yuen, an energy strategist with Citigroup's commodities team.

"It was one more prong -- one more source of pressure," he said. The full effect of the measures will likely come on gradually, he added, as the proposed rules solidify and utilities begin to quantify their impacts.

In his speech, Obama called for proposed rules to be formed by next summer and to come into force in 2015.

Exports: lifeline or last gasp?

Given the bleak picture at home, coal companies will likely increase their efforts to move their product overseas, Yuen said. But that strategy is itself hardly a sure bet, he added.

"Of course a number of producers will want to export, but there remain issues with the export side as global coal prices remain low," he said.

Goldman Sachs announced Monday that the oceangoing trade in coal to China, long expected to hold steady or increase in coming years, might in fact slacken. The firm noted that China's domestic production has grown beyond past estimates, at the same time as its economy has begun to slow down.

And for U.S. environmental groups, coal exports to Asia have become a "bright line" in the sand, said Bruce Nilles, director of the Sierra Club's Beyond Coal campaign.

"The U.S. still sits on top of the largest recoverable coal reserves on Earth," he said. "From a climate perspective, we need that coal to stay in the ground."

A large coalition of green groups has joined with local opposition in pushing back against coal terminals planned for the Pacific Northwest. Of six proposed terminals in Oregon and Washington, three have now been scrapped. The remaining three remain in various stages of regulatory review.

Push-back from Republicans and coal states

Although the coal industry's general trend has been downward -- coal's share of electric power generation has fallen from 50 percent in 2005 to just more than 40 percent today, according to the Energy Information Administration -- coal consumption actually rallied slightly last year, buoyed by a recovering economy that helped pick up the U.S. industrial sector. And coal still has powerful proponents, many of whom promised Tuesday to fight hard against the president's proposed rules.

Addressing the president in a joint letter with seven other governors, Kentucky Gov. Steve Beshear (D) wrote that "in Kentucky, which is primarily a manufacturing state with many energy-intensive industries, we estimate job losses in the industrial sector to be significant with even moderate increases in electricity rates."

Two of the signatories to the letter were Democratic governors, underscoring the fact that region, as well as party affiliation, influences support for coal.

Shortly after Obama's speech, Sen. John Barrasso (R-Wyo.) declared that he planned to put fellow members of Congress on record over the proposed rules.

The Sierra Club's Nilles said that, while challenges would certainly arise, the power sector would ultimately accept the new rules.

"Ten years ago, nobody was talking about mercury. Now it's regulated [under the Mercury and Air Toxics Standards]," he said. "We're going to go through the same process with carbon. They'll adjust."

Climate change grabs the attention of shareholders -- study

E&E News Friday, June 28, 2013

Concerns over climate change seem to be slowly creeping into people's minds -- even shareholders'.

According to a recent study by Ernst & Young, environmental and social concerns such as climate change are becoming the biggest priority for shareholders, amounting to 40 percent of all shareholder proposals for the first half of 2013.

"Forward-looking companies are preparing for the low-carbon economy, assessing strategic risks and compliance considerations, increasing operational efficiency, identifying competitive advantages that can be gained through more sustainable business practices, and communicating these efforts to investors," the study says.

Energy companies in particular have felt the change of heart in shareholders.

"We have recently seen boards react to the increased amount of shareholder activism in the oil and gas sector, at Murphy Oil, Hess and Occidental Petroleum," said John White, portfolio manager for Triple Double Advisors, an energy-focused investment firm in Houston.

While not yet committing to emissions reduction targets, many energy companies have started to respond to shareholders' concerns by focusing on reducing emissions, promoting efficiency and even pushing for a carbon tax (Emily Pickrell, Fuel Fix, June 25). -- IP

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