President Obama unveiled a wide-ranging plan to tackle climate change on June 25. The plan encompasses measures to cut greenhouse gas emissions from power plants, improve energy efficiency, support renewable energy and encourage preparedness for the impacts of climate change. Although Congress is unlikely to pass climate legislation, the President said that the administration could use executive authority to carry out these plans. 
Since this is one of the most comprehensive measures the U.S. government has taken to date to counter global climate change, it is likely to have wide-ranging implications for the energy sector. Coal companies could see thermal coal demand dip further, while electric utilities would face carbon emission standards for both existing and newly constructed power plants, potentially driving up their costs. On the other hand, renewable energy firms are potential winners.
Below is an overview of how the climate action plan could impact some of the sectors and companies that we cover within the energy industry.
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Electric Utilities Will See Generation Costs Rise
Greenhouse gases (particularly carbon dioxide) are the most prominent contributors to climate change. Since power plants account for nearly a third of greenhouse gas emissions, power plant regulation was the centerpiece of the climate plan.  While carbon pollution standards for new power plants have been discussed for some time now, they haven’t yet been finalized and implemented. Now, the President has asked the Environmental Protection Agency (EPA) to issue the proposed regulations for new power plants by September 20. Additionally, the carbon pollution standards will be extended to existing power plants – as opposed to just new plants – and these regulations are expected to be issued by June 2014. 
The EPA will set a certain emission standard for each type of power plant depending on the type of fuel (coal, natural gas), limiting the amount of CO2 that a given plant may emit for each megawatt hour (MWh) of electricity that it produces. For instance, the proposed limit for coal-fired power plants is around 1,000 lbs of CO2 per MWh. Meeting these standards would require coal-fired plants to install technologies such as carbon capture and storage (CCS) to reduce emissions, which would add significantly to generation costs. The U.S. Department of Energy estimated in a 2010 report that it would cost between $400 million and $900 million to install a carbon capture and storage facility for a 550 MW power plant.  There are also recurring costs, in addition to the fact that carbon capture could potentially reduce the energy output of a plant by as much as 30 percent. According to the Department of Energy, the estimated cost of capturing carbon dioxide would range from $60 to $114 per ton.  While these prices are likely to decline as the technology improves, it would still be a significant investment for utility companies.
Duke Energy (NYSE:DUK), a major U.S. utility, would be substantially affected by this since much of its generation capacity is coal-fired. As of last year, it generated around 46% of its electricity from coal and around 16.6% from oil and natural gas.  Over the last few years Duke has been investing in upgrading its coal-fired power plants to comply with the Mercury and Air Toxics Standards (MATS) and Cross-State Air Pollution Rule, and new greenhouse gas standards could push up generation costs even further.
Coal Companies Could See Declines In Thermal Coal Demand
Coal producers are likely to be the worst hit by the new standards, as electric utilities may choose to retire some of their coal-fired capacity in favor of natural gas rather than invest in expensive carbon capture technologies. CO2 emissions for natural gas-fired plants are about half those of coal, so it would be easier for them to meet the new standards. New gas-fired capacity is also much cheaper to install – while a new coal-fired power plant can cost as much as $3,200 per kilowatt, a modern gas-fired plant costs about $1,000 per kilowatt. 
The share of coal in the U.S. electricity generation space has been on the decline, falling from around 51% in 2003 to around 37% in 2012 and could fall further as the new emission standards come into place. Most of the thermal coal produced by U.S. producers such as Alpha Natural Resources (NYSE:ANR) is currently consumed domestically, so they would need to ramp up their exports to counter a decline in domestic demand. Internationally, the consumption of thermal coal has held up comparatively well and even grown in some developed economies such as Japan and Germany.  However, competition has been strong and pricing has been depressed of late due to strong supply from American as well as Australian miners.
Renewables Will Gain At The Expense Of Conventional Power
Renewable energy companies are likely to be the biggest beneficiaries of the proposed plan. The administration has extended permitting for an additional 10 GW of wind and solar energy projects on public lands in addition to the 10 GW that it permitted in 2012. The government also plans to increase funding for clean energy technologies by around 30% in the 2014 budget, and intends to double wind and solar power capacity in the U.S. by 2020. This could greatly benefit First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR), two of the U.S.-based solar energy companies that we cover. Both firms have expertise in developing large scale solar power plants, and streamlined permitting for land would be helpful.
Additionally, the President has asked the EPA to develop market-based instruments and performance standards, which could possibly allow for trading of emission credits. For instance, a utility company may continue to generate electricity from a coal-fired power plant that has CO2 emissions above the stipulated norms by offsetting these higher emissions through credits that it receives from a solar or wind power farm that it owns.  This could potentially boost investments into renewable projects by utility companies.Notes: