Investors, Take Note: U.S. Dependence on Fossil Fuels Dropping Despite Trump’s Paris Decision

David Fessler By David Fessler
Energy and Infrastructure Strategist, The Oxford Club

Market Trends

The last time I pointed out the reality of the energy landscape in the Trump administration, some of you were not pleased. One reader called me a chump. Another told me to stick to knitting.

Instead of taking on knitting as a new hobby, I’m going to stick to giving you the best insight I have – based on what’s actually happening in the markets… not political pandering. (In fact, my Advanced Energy Strategist subscribers are sitting on 230% gains in less than one year…)

As it turns out, this is a pertinent topic once again, all thanks to President Trump’s decision to pull the U.S. out of the Paris climate accord to combat carbon emissions.

I’m going to explain why, as an investor, if you follow Trump’s logic, you’re making a terrible mistake.

Policy Moving the Markets?

The first question you should ask yourself is “How does this decision affect how I should invest in the energy landscape?”

My short answer is… not much.

America’s nearly decade-long reduction in greenhouse gas emissions isn’t going to suddenly come to a screeching halt. Neither Trump nor the Paris accord has much to do with America’s movement away from fossil fuels.

The coal-digging Trump took office less than five months ago. Since then, utility companies have decided to partially or fully close eight coal-fired generating plants.

This effectively eliminates some of America’s biggest remaining greenhouse gas producers…

Together, they amount to 9.4 gigawatts (GW) of generating capacity. Many are shutting down decades before their licenses run out.

The eight plants above were all built after 1970. Four of them had a generation capacity of more than 1,000 megawatts, or 1 GW.

Over the last seven years, more than 250 coal-fired power plants have ceased to operate in the U.S. Most of those plants were small and old, and they ran only during peak times of demand.

The main reason the eight plants listed above are shutting down isn’t that they can’t meet Environmental Protection Agency emissions requirements.

In the face of cheap natural gas and wind, they simply aren’t economically viable anymore. And this isn’t the end of coal plant shutdowns either.

Michigan’s biggest power supplier, DTE Energy Co. (NYSE: DTE), announced last month that it will shutter all its coal-fired plants by 2050.

What is it replacing them with? Natural gas and wind. Both are cheaper – and cleaner – than coal is.

The Navajo Generating Station, located near Page, Arizona, is the seventh-most polluting power station in the country. The Central Arizona Project is one of the plant’s biggest purchasers of electricity.

But last year, it saved $38.5 million by purchasing power at market prices, as opposed to buying it from Navajo.

The trend is clear: Coal is on the way out, and natural gas and renewables are on the way in.

And it’s not happening just here in the U.S. either. In Trump’s June 1 speech, he said India and China are the world’s largest polluters…

Not true.

The U.S. and China were the largest carbon dioxide emitters in 2015. Further, both India and China are moving away from coal.

In India, the Modi government plans to have 175 GW of renewable energy in place by 2022.

China recently announced it is suspending construction on any new coal power plants in 29 of its 32 provinces. Several months before that, China announced it was canceling the construction of more than 100 new coal-fired power plants.

According to the Chinese government, its existing coal plants are running less than 50% of the time. And that’s down 4.6%, compared with 2016’s usage.

It turns out China has more power capacity than it can use. Plus, it’s investing heavily in renewables. In fact, right now it’s the world’s largest investor in renewable energy.

That means China’s coal plant utilization rate is going to continue to drop, just as it’s doing here.

What does that mean for coal? It means the world’s two biggest coal users will use less of it, not more.

Sorry, Trump. You can’t control market forces or the technology behind them.

Have an opinion on this? Feel free to weigh in below.

Good investing,