The scrapping of the foundation for U.S. federal climate regulations has upended energy investor narratives that have prevailed so far this decade, and is sparking a re-think on which sectors might now win and lose in the U.S. energy space.
The repeal of the so-called Endangerment Finding removes the legal basis for federal regulations of greenhouse gas emissions and a swath of other rules governing pollution standards and driving uptake of clean energy technologies.
That said, some rough outlines can be drawn on which sectors may benefit and which may suffer setbacks now that the previous federal rules on pollution standards are at least watered down for the foreseeable future.
CUTS TO COMPLIANCE
Firms engaged in the extraction, distribution and burning of fossil fuels for power look set to benefit under the less-regulated environment heralded by the repeal of federal emissions laws.
Utilities with hefty coal and gas power portfolios have already been designated as early winners from the repeal of federal regulations on emissions, as compliance costs and regulatory risks will likely now decline sharply.
Certainly, investors seem to look more fondly on the sector since the repeal news was announced, with the stock prices of American Electric Power (AEP.O), Duke Energy and NRG all pushing higher in recent sessions.
Southern Company and other fossil fuel-reliant power systems have also gained ground since the news, suggesting that investors see greater upside potential for power networks that mainly burn fossil fuels to generate electricity.
Stocks tied to the oil and gas servicing sectors, such as Baker Hughes (BKR.O) and Liberty Energy , have also gained ground since the news of the repeal, as have shares in Peabody Energy , the largest U.S. coal miner.
CLEAN TECH SETBACKS
Stocks tied to clean energy technologies, EV charging networks and cutting-edge energy storage capabilities have fared less well in the wake of the repeal news, as the federally driven momentum towards cleaner power loses steam.
The stock price of Danish offshore wind turbine maker Vestas (VWS.CO) came under fresh pressure in the immediate wake of the repeal news, which looks set to further dilute U.S. interest in offshore wind projects.
Shares in U.S. solid-state battery maker Quantumscape (QS.O) also took a tumble as investors interpreted the regulatory pivot as likely further slowing the roll-out of EVs in the U.S.
Charging station operator EVgo (EVGO.O) got tarred with the same brush, with shares falling to their lowest since mid-2024 shortly after the repeal news became official.
Companies that specialize in software and services for grid management and energy storage systems also took a hit lately as sentiment shifted away from industries that enable the energy transition towards traditional energy suppliers.
Shares in STEM - an AI-driven firm that helps operate clean energy assets - and Itron (ITRI.O) - a maker of sensors used by utilities to manage grid power flows - also took hits soon after the repeal news came to light.
WHAT'S NEXT?
Although investor sentiment in the U.S. energy space has shifted notably since the Endangerment Finding was repealed, it is still far from certain that traditional fossil fuel companies will consistently fare better than clean energy counterparts.
One major potential hazard for fossil fuel-based utilities is the risk of getting slapped with so-called "public nuisance" suits due to the emissions they generate.
An ironic side effect of the previous federal rules on pollution was that the Environmental Protection Agency (EPA), and not the court system, was responsible for regulating pollution.
However, now that the EPA has abandoned that oversight, the shield protecting heavy polluters may disappear, opening the door to fresh litigation from communities impacted by harmful discharge from power plants and other facilities.
Threats of years-long hearings and lawsuits may in turn dissuade some utilities from extending operations at decades-old coal plants, even if the previous regulatory pressure to close them has now been removed.
At the same time, many utilities that are under pressure to boost power supplies are still likely to view combinations of renewables and battery systems as the fastest means to deploy that extra power, regardless of the new pollution rules.
That could sustain the wholesale uptake of solar panels and battery storage systems across the country even as fossil fuel extractors get geared up to boost supplies.
All this means that even though federal U.S. pollution regulations are set to be quickly scrapped, the main players involved in producing and distributing energy in the U.S. may prove far slower to change course than many might expect.
The opinions expressed here are those of the author, a columnist for Reuters.
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