By Jacob Holzman

October 21, 2020 - A Democratic victory in the approaching U.S. elections would accelerate the decline of U.S. thermal coal, Moody's Investors Service Vice President and lead coal analyst Ben Nelson said in an Oct. 19 note.

By placing "greening the economy" at the center of rebuilding the U.S. from the coronavirus pandemic, former Vice President Joe Biden's energy policy platform "would have substantial negative implications for the thermal coal industry" in the U.S., Nelson said. Companies listed in the note as potentially impacted included Alliance Resource Partners LP, Arch Resources Inc., Consol Energy Inc. and Peabody Energy Corp. due to their "significant" production of thermal coal and negative ratings outlooks.

Biden has promised that if elected, he would advance a $2 trillion plan to revive the U.S. economy through federal investments in infrastructure and clean energy. Part of that plan is to position the U.S. power sector to decarbonize electricity entirely by 2035, which would "increase pressure on utilities and power generators to reduce emissions and an associated acceleration in the secular decline in demand for thermal coal in the U.S.," Nelson said.

"Coal-fired power plants would be hit harder and more quickly [under the plan] than other fossil fuels (including natural gas)," the analyst said. "Unregulated power generators, in particular, would be directly exposed to the market effects of new environmental regulations because they would be unable to recover increased compliance costs from rate payers, leading to a reduction of coal-fired units in the broader set of positive developments."

President Donald Trump ran for president in 2016 pledging to bolster U.S. coal and counter what he and other critics of the Obama administration called a "War on Coal." However, Trump's efforts to save coal through deregulation have largely failed to revive demand for the resource amid low gas prices and mounting environmental, social and governance pressure on utilities from investors. The sector's downward spiral has only sped up due to the market impacts of the coronavirus pandemic.

"While we expect that a second Trump administration would continue to promote a policy agenda that is generally favorable to the coal industry, efforts to this point have been insufficient to reverse the decline in demand that started in the late 2000s," Nelson said.

The credit ratings of some U.S. coal producers will be "less immediately vulnerable" to a Biden victory, such as Foresight Energy LP, which has "attractive" cash costs across its thermal coal portfolio and very low debt, Nelson said. Contura Energy Inc. and Warrior Met Coal Inc. were also noted as two companies well positioned to avoid the potential negative credit impacts to U.S. thermal coal.