The global warming debate has had an impact on coal shares. Environmentalists have pressured various investment funds to divest coal. But by doing that, environmentalists have done two things:
1) Helped to deflate the debt and equity prices of coal companies, and
2) Unwittingly accelerated the rate of climate change through the acceleration of the use of natural gas in place of coal.
In the course of due diligence work on Peabody (NYSE:BTU), I have had to ask myself: Do the environmentalists have a point about coal? Should coal, as many say, stay in the ground? Not if you look at the EPA data.
According to the EPA: "Pound for pound, the comparative impact of CH4 on climate change is 25 times greater than CO2 over a 100-year period." Methane is 25 times more potent a greenhouse gas than CO2. How much methane is released by human activities? According to the EPA: "In 2013, CH4 accounted for about 10% of all U.S. greenhouse gas emissions from human activities."
Let's get something straight right away about methane:
Impact: 250% (Relative to CO2)
Methane gas is doing 2.5 times more work than CO2 to increase global temperatures, according to the EPA.
This fact about methane is rarely highlighted by environmentalists, who seem to focus, rather bizarrely, on CO2. Now, one might ask, Why are environmentalists going after CO2 when the real problem is methane?
Climate change science used to move slowly. The focus was on CO2 at the time because CO2 has been, historically, the green house gas having the biggest volume. Hence, it was entirely reasonable to focus on CO2.
The explosion in natural gas use in electricity (88% methane) has been a relatively recent phenomenon. By the time the environmental lawyers and policy makers target an emission and target specific companies, the game may have changed on them.
This has happened with coal. By the time the EPA's case against coal was solidified, the game changed, hugely. With natural gas's increase in market share over the last decade, and with exponential growth in North American hydraulic fracking, methane, not CO2,
has become the real global warming problem.
Although invisible, methane is 25 times worse than CO2. But coal is an easy target: it looks dirty, so the public goes with the story.
And coal, by the way, generates just 1/3 of CO2.
Environmentalists might argue that the whole mess of methane and CO2 just points to the greater need for non-fossil fuel alternatives. They may have a point. But in the mean time, we are stuck with coal and natural gas.
Natural gas is comprised of 88% methane. If we retire coal, we are faced, at least in the medium term, with the prospect of doubling a greenhouse gas which is 25 times more potent than CO2. Hence the fallout from moving from coal to natural gas will be that the global warming problem doubles. I don't see how that's progress. I don't see how that is environmentally friendly.
The increase in methane can be reversed, or at least slowed, by a substitution of natural gas for coal. As bizarre as it may seem, coal, at least before solar can reach adequate capacity, is the environmentally conscious choice if you are serious about climate change.
Sources Quoted or Utilized:
Carbon Dioxide: http://1.usa.gov/1iRM74v
Nitrous Oxide: www3.epa.gov/climatechange/ghgemissions/...
Composition of Natural Gas: www.beg.utexas.edu/energyecon/lng/LNG_introduction_07.php
Solar Panels: www.oregon.gov/ODOT/HWY/OIPP/docs/solar_...
Disclosure: I am/we are long BTU.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.