Big Coal vs Big Banks
The progressive mixing of finances and politics has taken another step with the State of West Virginia banning several Wall Street Banks from doing business in the state. It turns out that Goldman Sachs, JPMorgan, BlackRock, Morgan Stanley and Wells Fargo have quit or cut back on their financing of the coal industry. Meanwhile Florida governor Ron DeSantis proposed legislation that would “prohibit big banks, credit card companies and money transmitters from discriminating against customers for their religious, political or social beliefs.”
Banks Excluded from Doing Business with the State
Despite the headlines, West Virginia is not kicking Wells Fargo and the rest out of the state. But they are taking steps to exclude these folks from the state’s business with the exception of their pension funds for the time being. Their complaint is that JPMorgan, Morgan Stanley, Black Rock, Goldman Sachs, and Wells Fargo have cut back on financing coal operations. The West Virginia state treasurer now has the power to ban anyone from doing business with the state if they are seen to be “boycotting fossil fuels.”
Follow the Money and the Profits in the Utility Industry
The political side of the argument about coal is that environmental regulations are hurting the industry. The financial side of the argument is that from 2007 to the present the percentage of American homes getting their electricity from coal-fired power plants has fallen by 55%! The industry is switching to renewable sources of energy and to natural gas. The first reason is that natural gas prices fell by roughly sixty percent from 2003 to the present due to improvements in horizontal drilling and hydraulic fracturing which allow for more efficient extraction of natural gas from shale deposits. Second, gas-fired plants can come up to full power more quickly than coal-fired plants when demand peaks. This makes a gas-fired plant more profitable than a coal-fired plan even when the cost of coal versus gas is factored out.
Renewable energy was not cost-competitive with coal years ago but it is now. This is first of all because of improvements in technology such as battery storage. But the longer term reason is that when a renewable power facility is up and running it has significantly lower operating costs because they are not having to buy any fuel!
The Environmental Argument Against Coal
Global warming is the argument that gets all of the press when it comes to coal and other fossil fuels but the emission of mercury, nitrogen oxides, sulfur dioxide, and soot (AKA particulate matter) are of more immediate concern and reasons that regulation is unlikely to go away. Thus, until someone comes up with cheaper and cleaner ways to use coal to generate power it is likely to keep sliding no matter what the State of West Virginia does to big banks and others who, for financial reasons, choose not to finance coal operations.
It’s all about the money and not about the politics when you look at what the banned companies are doing. Blackrock’s CEO said, “With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector.” It also should be noted that West Virginia is not a major economic force for any of the banned companies although none of them would willingly give up doing business anywhere. Nevertheless, West Virginia is unlikely to suffer by excluding a few financial operations when there are always more who are willing to get their business. We do not expect any of this to have a major effect on the stock prices of any of these companies although we will pay attention like we do to the activities of the DRINCs and anything else that drives the markets.