How Would CSX Be Impacted By A Potential Decline In Coal Shipments With The Implementation Of The Clean Power Plan?

September 21st, 2016 by Trefis Team
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The implementation of the Federal Government’s Clean Power Plan was stayed by the U.S. Supreme Court pending judicial review earlier this year. The Clean Power Plan, which is a part of the Federal Government’s efforts to lower carbon dioxide emissions, targets a 32% reduction in power plant carbon dioxide emissions by 2030 from 2005 levels. [1] If the Clean Power Plan is implemented post judicial review, it could significantly lower the demand for coal from utilities, which would be forced to shift towards alternative fuels such as natural gas. This would negatively impact U.S. rail shipments of coal. The following graph illustrates our present forecasts for the same.

In order to model the impact of the implementation of the Clean Power Plan, we have factored in a 30% decline in U.S. rail shipments of coal from the base case by the end of our forecast period (2023). We have maintained our market share expectations for CSX, which translates into a 30% reduction in coal shipments for the company by 2023.

See our forecasts for U.S. coal shipments in the Implementation of Clean Power Plan scenario

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The decline in demand for coal shipments could translate into a decline in revenue per carload for shipments of the commodity for CSX. We have factored in a 10% decline in revenue per carload of coal shipments by the end of our forecast period. Given the decline in shipments and pricing, we have also revised downwards our margin forecasts for the company by around 320 basis points by the end of our forecast period. If we factor in the aforementioned assumptions into our model, it would result in a 10% decline in our price estimate from the base case.

See our complete analysis for this scenario for CSX here

Have more questions about CSX? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for CSX

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Notes:
  1. Clean Power Plan Final Rule, EPA Website [↩]