Weak economy could curb Obama coal cleanup plan

HOUSTON (Reuters) - As U.S. president, Barack Obama is likely to tighten environmental regulations on generating power from coal, but his ambitions could be reined in by the cost of such measures given a weak U.S. economy.

Obama's campaign proposal to fight global warming - by cutting heat-trapping carbon dioxide emissions to 80 percent less than 1990 levels by 2050 - could require big U.S. utilities to spend billions to comply.

But coal-fired power plants, which generate about half of U.S. electricity and 40 percent of U.S. greenhouse gas output, will have to be the backbone of America's power grid for decades because U.S. coal is plentiful and relatively cheap.

"Coal is going to be clamped down on from mine mouth to smokestack, but it's not as though coal is going out of style," said Kevin Book, an energy analyst with Friedman, Billings, Ramsey Group Inc (FBR.N).

"Obama cannot ignore the economic side of the story," Book said.

Just before the November 4 election, Republicans seized on Obama's comments to a newspaper that U.S. utilities could face bankruptcy if they build new coal plants. However, utility officials generally see the Democratic president-elect as supportive of their industry.

Earlier, Obama handed out flyers in Kentucky with a picture of coal barges on the Ohio River and stating, "Barack Obama believes in clean Kentucky coal." He has backed pioneering power plants that burn coal but capture carbon emissions.

A NEW CHAPTER

On Tuesday, Obama - whose home state of Illinois is a major coal producer - said the United States would "engage vigorously" in climate change talks when he is president and pledged, despite the financial crisis, to fight the problem.

"My presidency will mark a new chapter in America's leadership on climate change that will strengthen our security and create millions of new jobs in the process," Obama said in a video address to a global warming summit in California.

Obama wants coal-burning U.S. utilities such as Southern Co (SO.N) and American Electric Power (AEP.N) to find cleaner ways to use America's coal reserves - which are expected to last about 250 years at current rates of use. He also wants to develop nonpolluting solar and wind energy and to push programs to encourage reductions in greenhouse gas emissions.

Some U.S. mining industry officials fear Obama could impose draconian regulations on the use of coal, though such worries are not universal across the industry.

"I think the impact on the industry will be huge," said John Wellford of Marsh Fork Development Co, a small West Virginia producer, who warns tighter federal regulations could shut down much of the industry.

Other industry officials say that concerns about the economy and the need for affordable energy will balance environmental worries as U.S. consumers suffer through one of the worst economic contractions in decades.

The National Mining Association, which lobbies for big coal companies such as Peabody Energy (BTU.N) and Arch Coal (ACI.N), predicts that Obama will be pragmatic in his energy policy.

"He obviously is a man who can read public sentiment," said Luke Popovich, a spokesman for the group, arguing that jobs and the economy trump all other concerns. "That's going to dominate the agenda for the foreseeable future."

GIVING COAL A BREAK

Another moderating factor is that Congress, though more Democratic after the November 4 elections, includes Democrats from coal-producing states who would resist extreme measures against the industry.

"There's a lot of folks who can find their way to giving coal a break," Book said, noting coal is mined in 27 states and can be found in 11 others. "There's only so far he can go before he gets in trouble with his own party."

Environmental groups expect Obama to be more pro-active on environmental issues than Republican President George W. Bush, who resisted costly measures to fight global warming, but they acknowledge Obama faces a tough agenda topped by other issues.

"He talked about clean coal, and I think he has a commitment to make sure it is clean. Exactly how that plays out in his priorities remains to be determined," said Cathy Duvall, political director for the Sierra Club.

(Editing by Chris Baltimore and Marguerita Choy)