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Winners and Losers from Clean Power Plan Rollback

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Undeterred by his recent defeat on a new healthcare legislation, President Trump is looking to push ahead with another key policy announcement on Tuesday. On Sunday, EPA chief Scott Pruitt revealed that Trump was going to issue an executive order on Tuesday which takes the first step toward reversing the Clean Power Plan, the Obama administration’s signature climate change initiative. Speaking on ABC’s “This Week” program, Pruitt said the order would be followed by further steps to ensure a future which was “pro-growth, pro-environment.”

In the very first days of its tenure, the new administration has already taken several steps to ensure that restrictions on mining and conventional power are removed to the benefit of industries involved. This fresh move is likely to benefit conventional power sources and producers while weighing on clean energy, a sector which had benefited immensely from the Obama administration’s environmentally conscious policies.

Rolling Back Clean Power

Repealing the Clean Power Plan, one of the Obama government’s signature reforms, would go a long way toward unravelling the previous administration’s environmental legacy. The Clean Power Plan had mandated clearly defined emission reduction goals for the states in order to ensure that the EPA’s overall target was achieved. The agency was aiming to push carbon dioxide emissions below 2005 levels by 2030.

Critics of these requirements have said that by setting states strict emission reduction goals instead of doing so for specific facilities, the EPA was overstepping the authority granted under the Clean Air Act. The Supreme Court had issued a stay on the plan on Feb 2016, but energy producers have already increased their renewable and natural gas generating capacity in order to achieve future targets. It is now likely that Trump will ask courts to hold off ruling on the matter under the EPA redrafts comparatively softer rules on this issue.

Removing “Social Cost” Requirements

Trump is not limiting his environmental actions to power producers alone. The President will also remove an Obama administration rule which mandates that federal officials take into account the “social cost” of carbon into their policy decisions. This is a concept which quantifies the value of long term damage caused by carbon emissions in dollars. Currently estimated to be $36 per ton of carbon dioxide, this is another concept which was met with harsh criticism from conservative politicians.

Further, Tuesday’s executive order is also likely to remove the moratorium placed on federal coal leases. This restriction was also enacted by the Obama administration and has been in place since Dec 2015. These actions are in addition to the steps taken by Trump immediately after assuming office.

Trump has already repealed the Stream Protection Rule, which placed limits on the dumping of waste generated from coal mining. Additionally, Trump has abolished the Waters of the U.S. rule which had broadened the number of waterways eligible for federal protection. (Read: 4 Stocks to Buy as Trump Prepares to Remove Coal Ban)

Winners: Coal Producers

Coal fired plants would stand to gain the most from Trump’s upcoming executive order though this may not result in fresh capacity additions. Instead, existing coal fired plants would then be in a position to snatch market share away from nuclear and natural gas based power producers. This includes the likes of Zacks Rank 2 (Buy) rated Ameren Corporation (AEE - Free Report) and Zacks Rank #3 (Hold) rated Pinnacle West Capital Corporation (PNW - Free Report)

Such a stance on power would be especially beneficial for the coal mining sector as well. The capacity factor for coal would rise and miners would have to step up production to meet the increased demand from power plants. The abolishment on the moratorium on federal coal mining leases is likely to benefit the likes of Zacks Rank #3 rated CONSOL Energy Inc. (CNX - Free Report) and Arch Coal, Inc. (ARCH - Free Report) . Located in St. Louis, MO, this coal producer has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Losers: Natural Gas, Nuclear Power

At first glance, the immediate losers seem to be natural gas fired power facilities and natural gas producers. States with a more cautious stance toward environmental issues, such as California, have made significant investments in natural gas fired plants. This in turn has benefited natural gas producers such as ConocoPhillips (COP - Free Report) and Chesapeake Energy Corporation (CHK - Free Report) , both rated Zacks Rank #3.

But the new executive order is unlikely to change the situation radically, since even those states earlier opposed to the Clean Power Plan enthusiastically adopted natural gas power after costs dropped. However, the acceleration in demand would certainly be halted by Trump’s gradual unravelling of the clean power plan.

A sector which would suffer grievously is nuclear power, which currently accounts for around 20% of domestic power generation. This is because several nuclear power facilities are ageing and more than 30% can no longer stand up to competition from other sources of power.

The lack of stringent emission norms would lead to its gradual replacement by solar, wind and gas generated power. Such a scenario does not bode well for the likes of Zacks Rank #3 rated nuclear power producer Exelon Corporation (EXC - Free Report) and uranium mining company Cameco Corporation (CCJ - Free Report) , which carries a Zacks Rank #5 (Strong Sell).

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