Report

Green Day

The Obama administration's ambitious new clean energy policy has the coal industry on the warpath.

On Monday, the Obama administration will lay out the centerpiece of its efforts to fight climate change, an ambitious but convoluted plan to clean up greenhouse gas emissions from the U.S. electricity sector, the biggest single source of the gases that contribute to global warming.

If fully implemented over the next few years, the plan -- which calls for pushing dirtier power plants off the grid -- could go a long way toward ensuring that the United States meets its own informal targets for greenhouse gas reductions. What's more, such an ambitious step at home will give the Obama administration a powerful argument to take to next year's big international climate confab, the 21st U.N. climate summit, where the world will gather yet again to try to craft an international agreement to fight climate change.

But the plan will also further fuel a domestic political firestorm that will likely continue for the rest of Obama's presidency. Conservatives and some business groups, such as the United States Chamber of Commerce, say the Environmental Protection Agency's new climate rules are just the latest campaign in a "war on coal."

They worry the new rules will kneecap the economy, cost billions of dollars per year, and put the United States at a disadvantage compared to economic rivals such as China. Critics say the new rules will force power companies to shut down coal plants; even energy analysts concede that tougher standards will hammer the U.S. coal industry, which is already reeling thanks to the natural gas revolution.

The proposed new rules essentially aim to reduce the amount of coal-fired power plants in the nation's electricity system; the actual targets for how much emissions reductions the administration wants to see will come Monday. The power sector accounts for one-third of U.S. greenhouse gas emissions, and coal plants produce more greenhouse gas emissions than any other type of generation.

"Controlling emissions from power plants represents the single-greatest opportunity to reduce U.S. emissions overall," noted Kevin Kennedy, the director of the U.S. climate initiative at the World Resources Institute, an environmental think tank.

The rules are the follow-up to a similar step announced last year, which put sharp limits on how much carbon new power plants will be able to emit. Those rules, which stipulated that new power plants can only emit about 1,000 pounds of carbon dioxide per megawatt hour of generation, effectively rule out coal-fired plants being built in the future. (The cleanest coal plants today produce nearly twice that amount.)

The new standards, in contrast, take aim at the existing U.S. power generation fleet, the world's second largest. They are meant to prod states to come up with ways to generate electricity that are, on the average, cleaner than today. That could be done by shuttering coal plants, using more natural gas for power, installing lots of renewable energy, or using electricity more efficiently.

The White House argues that the new rules will be a key part of pushing the country further toward a low-carbon future. While the United States has done a better job at cutting emissions than any other country over the last 10 years, many of those gains could be reversed without tough new guidelines, the administration says.

The big questions to be answered next week are: Just how much does the administration propose to curb greenhouse gas emissions, and compared to what year? Both questions matter a lot. Deep cuts would be harder to achieve without expensive and still-untested technologies. And the U.S. energy sector has already cut emissions over the last decade thanks to the boom in relatively clean natural gas and the recession, which slashed demand for electricity.

Power companies want to measure cuts against 2005, when greenhouse gas emissions in the energy sector peaked in the United States. Big utilities are especially worried because they have already spent billions of dollars to retrofit existing coal plants to meet other environmental rules, and they worry the new guidelines will drive them into early retirement.

"The regulations should not force the premature shutdown of existing, well-controlled coal-fueled power plants and strand the billions of dollars invested in those plants to control other emissions," said Melissa McHenry, a spokesperson for AEP, Inc., one of the biggest power companies in the United States.

Power companies are waiting on the exact details of the proposal, but legal challenges against the EPA are all but guaranteed; nearly all of the Obama administration's climate rules have been challenged in court.

Environmentalists, on the other hand, want to measure cuts against the current, relatively clean power sector, because that would mean locking in further cuts to already-low levels of energy-sector emissions. The administration could propose a third way, measuring cuts against the average carbon emissions of the last few years. Either way, it will set the stage for years of political and legal wrangling that is likely to last until the end of the Obama administration.

As important as the new standards will be for reshaping the U.S. energy sector, they could also play a big role internationally. Climate scientists, led by the United Nations' Intergovernmental Panel on Climate Change, keep warning that the whole world needs to start making serious reductions in greenhouse gas emissions in order to avoid catastrophe later in the century.

So far, though, a binding international agreement that would force the United States, Europe, China, and other major economies to cut their emissions has proven elusive. Developing countries, led by China, argue that rich countries are to blame for two centuries' worth of dirty growth; rich countries counter that China, India, and the like are driving most of the new growth in the greenhouse gas emissions that could push the world to dangerous levels of atmospheric carbon concentrations and make for a hotter planet.

But implementing tough new power plant rules could give the Obama administration a great trump card to play at the next round of international negotiations in Paris late next year, said Kevin Book, founder of ClearView Energy Partners, LLC, an energy consultancy, in a research note.

Simply put, the new rules could make it easier for the United States to penalize other countries that don't take similar steps to clean up their own economies. That could come in the form of tariffs, such as added duties on imports from countries with laxer environmental rules. And that would serve a double purpose: protect the U.S. economy from potential harm thanks to tougher rules, and spur foot-dragging countries to play ball.

"Whether or not the Administration actually proposes border taxes, the White House will have acquired leverage for international negotiations," Book wrote.

Mark Wilson - AFP - Getty

Report

Cloud of Uncertainty Lingers Over Business in Russia

The Ukraine crisis is still seen as holding back investment.

Russia has escaped the immediate sanctions threat from the West, but ongoing instability in Ukraine could still keep foreign investors on the sidelines.

"The endgame is still not clear and the economy is still under some pressure, still slowing," said Win Thin, who advises investors as the global head of emerging-market strategy at Brown Brothers Harriman & Co. "There's still too much baggage right now for people to jump back in."

Though the risk that the West would freeze more Russian assets for interfering with Ukraine's presidential elections has passed, U.S. and European leaders are still keeping sanctions on the table as they wait to see how Moscow responds to continued unrest in eastern Ukraine. U.S. Defense Secretary Chuck Hagel said Friday in Singapore that Russia has removed most of the troops along Ukraine's border, a development he called "promising," though he also said thousands of soldiers still remain. The fighting continues, however: Acting President Oleksandr Turchynov said Thursday that pro-Russian rebels shot down a military helicopter near Slovyansk, killing at least 14 people, including a general.

For companies and investors that are waiting for the conflict to die down before they make decisions about what to do next, the continued upheaval means more uncertainty.

Investors moved $50.6 billion out of Russia in the first three months of 2014, more than the $59.7 billion during the whole previous year, according to Bloomberg. That figure includes trade flows, foreign investors pulling out of the country, and Russians moving their money into other currencies because they were worried about the falling value of the ruble. The ruble fell 5.3 percent this year against the dollar, but it has rebounded 2.8 percent in the past month.

"I think those that are seeking clarity are going to be disappointed," said Steven Pifer, a former ambassador to Ukraine and a senior fellow at the Brookings Institution.

"Nobody wants to jump back in too quickly," added Matthew Getz, an attorney with law firm Debevoise & Plimpton in London who advises companies on sanctions compliance. "The fact that it's still being considered is still making people wary."

Getz said that some clients are writing clauses into their loan agreements to allow them to cancel the contracts if the Russian company is sanctioned. And Russian businesses are looking into the possibility of avoiding transactions in U.S. dollars, he said, so that they will be out of reach of any future restrictions coming from Washington. Because the U.S. dollar is the dominant currency for global business, many transactions that don't otherwise involve a U.S. company are routed through American banks, and that point of contact with the U.S. financial system makes the deals subject to Washington's sanctions. Routing the transaction through another country would be one way to avoid them.

"Some companies [have] talked about telling all their counterparties that they're going to do all their transactions in other currencies, like Singapore dollars," Getz said.

The Ukraine crisis will likely continue to be a drag on the Russian economy, which was already hurting even before the West started freezing the assets of powerful Russian oligarchs after the takeover of Crimea. Some Russian start-ups are pulling up stakes and heading to Europe to run their businesses, according to a USA Today report. Yoanna Gouchtchina, for instance, decide to move her software company ZeeRabbit from Moscow to Berlin, after the Crimea invasion.

"Right now it feels like just the beginning of the end of those years where we were building the Russian economy," she told USA Today.

But for some financial firms, the bad news is creating an opportunity to buy stocks on the cheap.

"The crisis will likely have a negative impact on Russia's economy but increasingly attractive valuations provide a good buying opportunity," T. Rowe Price portfolio manager Ulle Adamson said in an email. Adamson, who runs the company's Emerging Europe Fund, said she is maintaining the fund's stake in the Russian stock market and buying more shares of companies she considers strong, while prices are low.

Bill Reinsch, head of the American trade association the National Foreign Trade Council, said companies will be cautious but their degree of caution will depend on the industry.

"The one sector that will probably move quickly is the energy sector," he said. The Financial Times reported Sunday that BP confirmed its commitment to a shale oil deal with Russian state-run company Rosneft at a major economic conference in St. Petersburg that U.S. officials had urged Western companies to boycott. The deal was signed even though the United States sanctioned the head of the Russian company, Igor Sechin. The freezing of Sechin's assets didn't extend to Rosneft.

Washington-based trade lawyer Doug Jacobson said he gets lots of inquiries from clients about Russia, but he doesn't always have an answer for them.

"They're asking me what's going to happen and no one knows," said Jacobson. "That's the worst possible thing for business, is just to have uncertainty."

ALEXANDER NEMENOV/ AFP/ GETTY IMAGES