Energy Investing: The Decline of the U.S. Coal Industry

If you're interested in investing in coal, you should know that a highly charged debate about coal has been raging in the United States since Al Gore won an Oscar.

President Obama and his administration have pushed hard and generally succeeded in fulfilling his 2008 election promise to end the expansion of the coal industry in America. This campaign has been helped along by the low cost of natural gas. Most new power plants in the United States are gas-fired.

According to data from the U.S. Energy Information Administration, U.S. coal production in the first half of 2012 was down 11 percent compared with the first half of 2007. And that's just the start. The federal government's anti-coal stance is focused on more than just production. It's also against burning coal, as evidenced by these new regulations:

  • New source performance standards for greenhouse gas emissions from new coal-fired power plants. These rules will ban new coal-fired power plants that don't capture carbon dioxide emissions. The technology is prohibitively expensive. Grandfathered plants don't have to meet these rules, but they will get hit by the next set of regulations, called MATS.

  • Mercury and air toxics standards (MATS). This regulation aims to reduce emissions of mercury and other foul substances from power plants. According to the EPA, the cost of this regulation is $10 billion per year.

The combination of these two rules could end coal-fired power plants in the United States within the next ten years. It will certainly push utility companies to go for natural gas or nuclear power instead.

As an investor, you should know that the Obama administration is being true to its word for an end to on coal-fired power plants. That doesn't mean there aren't investment opportunities. The United States has the highest quality and highest quantity of low-cost coal in the world. There are plenty of ways to invest.

Even if no coal is burned in America, it will be exported and burned in China. This is why Warren Buffet has been buying up railroads that run from major resource centers to ports on the West Coast.

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