June 3, 2014

Inside Energy Reads: Carbon Regs Post-Mortem

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Response and reaction to President Obama’s proposals on carbon emissions were all over the map. From qualified praise along the lines of “good, but not enough” from mainstream media like the New York Times to condemnation from the business industry, via the Wall Street Journal. The Journal editorialized that Obama was creating a new “wealth distribution scheme.”

Meanwhile, reporters and analysts scrambled like crazy to figure out what the new regulations will mean to states, and to consumers. NPR offered an analysis that essentially said: it depends on where you live, and on natural gas prices, and on how different states react.

The only real answer: we don’t know yet, which is essentially what Inside Energy reported.

Some very interesting financial analyses were offered in a couple of Bloomberg stories, however. Contrary to some early assumptions, it seems — at least according to this story — that the coal industry didn’t really come out too badly. Some coal-fired plants will be shut down because of earlier regulations.

Using Environmental Protection Agency (EPA) figures, Bloomberg writes, “Coal’s share of the country’s power generation will fall to about 33 percent in 2020 and 30 to 31 percent in 2030 under the proposed curbs, compared with an increase to 41 percent under existing rules.”

That’s hardly a death knell. Or, as Sherry Orton, senior analyst at Doyle Trading Consultants in Colorado, says in the story: “Rumors of coal’s demise are greatly exaggerated.”

Another Bloomberg story looked at the overall impact on the energy industry, parsing out the winners and the losers. The headline correctly lays out the import of the proposed rules: Obama Climate Proposal Will Shift Industry Foundations. Coal dependent utilities will likely face billions of added costs, while renewable and nuclear energy companies stand to benefit.

Using market-speak, Bloomberg quoted a Fitch Ratings statement: “While we expect investor owned utilities, public power, and cooperative utilities to recover these higher costs from end users, the financial strain could result in weaker financial metrics and flexibility and downward rating pressure.” Which means some companies will raise rates for some consumers.

Winners include companies, like General Electric, that produce gas turbines, as well as companies entrenched in wind and nuclear energy.