Coal And Nuke Investors Think Trump Just Saved Their Bacon. They’re Naïve.
President Donald Trump was hailed by many in the energy industry — and excoriated by environmentalists — in January when he made a great show of signing executive orders advancing the controversial Dakota Access Pipeline and the Keystone XL pipeline. (I argued at the time that both sides were misreading the orders.) Now, the administration is being hailed again by investors betting he’ll deliver a U.S. energy policy more favorable for coal and nuclear. Investors have seized upon two key energy documents issued in March and April that seemingly turn U.S. energy policy on its head.
After Trump’s pro-coal move, TheStreet wrote “Coal Stocks Get a Bump as Trump Signs Climate Executive Order.” That renewed optimism is evident in the VanEck Vectors Coal ETF, which was hovering above $5 in January of last year before rising to $13. In the nuclear industry, BWX Technologies Inc., the only domestic nuclear reactor building stock and the only heavy nuclear component maker in North America, is up over 27% this year. Investopedia writes, “nuclear energy has been quietly on the rise, perhaps expecting a breakout year under [the Trump] administration.”
I’m skeptical. If you’re an energy investor, be afraid. You may be picking up pennies in front of Trump’s regulatory steamroller. At best, the moves create an opportunity that only some energy companies will seize upon. Others will strike out.
The conventional wisdom is that the Trump administration’s moves will bring subsidy cuts for renewables and will be a boon for the coal and nuclear power industries. On their face, the two documents do, I agree, seem designed to unleash a major reversal and perhaps even a revolution in U.S. energy policy. The first is an executive order signed by the president March 28, titled Order on Promoting Energy Independence and Economic Growth. The second, issued on April 14, is a memorandum from U.S. Energy Secretary Rick Perry ordering a “Study Examining Electricity Markets and Reliability.”
To appreciate how important these two documents are, you have to remember that coal and nuclear producers have been hounded by environmentalists and hammered by competition from turbines burning cheap natural gas. The Trump administration, however, is now promoting the notion that energy “reliability,” “grid resilience” and “fuel diversity” are valuable — even if burning coal or breaking atoms dirties up the environment and generates more expensive electricity. Perry’s memo mandates a study to ask whether renewable energy subsidies contribute to the closing of coal-fired and nuclear power plants and threaten the reliability of the electric power grid.
The Trump order would alter the Obama administration’s Clean Power Plan to cut greenhouse emissions as well as an Environmental Protection Agency rule that measures the marginal benefit of CO2 abatement. It also would repeal a rule requiring oil and gas companies to provide information about methane emissions and would overturn a rule requiring federal agencies to assess the impact of their actions on climate change.
EPA head Scott Pruitt explained the administration’s thinking to Fox Business Network: “What would happen if we had an attack on our infrastructure when you’ve diverted to natural gas almost exclusively and you don’t have coal there as a safeguard to preserve the grid? …It’s a smart strategy for this country to invest in technology and innovation, burn coal, burn natural gas, use renewables, make sure we advance nuclear.”
