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The Impact of Repealing the Clean Power Plan

In the aftermath of Donald Trump’s victory last November, I wrote that he was likely to target the EPA’s Clean Power Plan (CPP) for repeal. Then in March, President Trump signed the Executive Order on Energy Independence, which called for a review of the CPP.

I believe repeal was a foregone conclusion, and the review was really just to ensure that the repeal would hold up to legal challenges. Last week, the EPA made it official and announced the intention to formally repeal the CPP.

Today I discuss the likely impacts of the repeal.

What is the CPP?

The CPP was first proposed by the Obama Administration in June 2014. The final version of the plan, titled “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units,” was published on October 23, 2015.

The CPP required a 32% cut in utility-sector carbon emissions from 2005 levels by 2030. In addition, the EPA projected that the plan would:

  • Cut particle pollution, nitrogen oxides, and sulfur dioxide by more than 25% 
  • Avoid up to 6,600 premature deaths, up to 150,000 asthma attacks in children, and up to 490,000 missed work or school days — providing up to $93 billion in climate and public health benefits
  • Shrink electricity bills roughly 8 percent by increasing energy efficiency and reducing demand in the electricity system.

In a nutshell, the CPP would have made it nearly impossible to build new coal-fired power plants in the U.S., so coal as a source of power would have been phased out in the U.S.

Many states claimed that they would be harmed by the CPP, so they sued. Leading the lawsuit on Oklahoma’s behalf was Oklahoma Attorney General Scott Pruitt, who would later become President Trump’s EPA Administrator. He ultimately oversaw the review and the recommended repeal. 

Impact of the CPP

The CPP and similar regulations are often blamed for the demise of the coal industry in the U.S., but coal-fired power was already set for a major decline over the next two decades. 

Last year the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2016 (AEO2016) projected the impact of the CPP. The EIA did predict that the CPP would boost the natural gas and renewable energy sectors, primarily at the expense of coal.

In the AEO2016 reference case, which included the CPP, 92 gigawatts (GW) of coal-fired capacity would be retired by 2030. But even without the CPP, an estimated 60 GW of coal would be retired.

Renewables and natural gas would continue to grow strongly in both cases, but with the CPP coal-fired generation in 2040 would be down 32% from 2015 (as specified by the CPP).

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Electricity generation from natural gas is expected to increase steadily from 2020 to 2040 even in the absence of the CPP and is projected in both cases to become the leading power fuel source. Without the CPP, electricity generation from renewables is not expected to overtake coal-fired generation by 2040.

Conclusions

The net impact of the repeal — beyond the obvious implications of failing to curtail U.S. carbon dioxide emissions as quickly as had been projected — is slower growth rates for natural gas and renewables and a slower demise for coal. I certainly would not make major changes to my portfolio based on this repeal.

The future is still bright for natural gas and renewables, but you might be tempted to hang onto your coal stocks for a bit longer. Coal stocks are rallying on the news. As I write this the largest gainers in the portfolio are our coal holdings, and the largest decliners are some of our renewable holdings. Long-term investors shouldn’t be too concerned about this, as the trends will continue in the same direction even without the CPP. 

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