Whither the Regulatory "War on Coal"? Scapegoats, Saviors, and Stock Market Reactions

Cary Coglianese, University of Pennsylvania Law School
Daniel Walters, Penn State Law School


Complaints about excessive economic burdens associated with regulation abound in contemporary political and legal rhetoric. In recent years, perhaps nowhere have these complaints been heard as loudly as in the context of U.S. regulations targeting the use of coal to supply power to the nation’s electricity system, as production levels in the coal industry dropped nearly by half between 2008 and 2016. The coal industry and its political supporters, including the President of the United States, have argued that a suite of air pollution regulations imposed by the U.S. Environmental Protection Agency (EPA) during the Obama Administration seriously undermined coal companies’ bottom lines, presenting an existential threat to the industry. Under the Trump Administration, industry players have lobbied hard for (and sometimes received) financial subsidies and regulatory changes, with the President seemingly all too happy to play the role of the industry’s savior.

Stepping back, we consider the extent to which regulations have really led to the decline in demand for coal and how much the coal industry can actually expect to gain from the de-regulatory policies of the current Administration. To illuminate these questions, we statistically analyze stock market reactions to important events in what critics called the regulatory “war on coal” during the Obama Administration. Using an event-study framework that measures abnormal market activity in the immediate wake of these events, we are able to isolate any potential impact of regulatory developments above and beyond market factors, such as secular trends in natural gas prices and market performance as a whole. Surprisingly, we find no systemic evidence consistent with a “war on coal” based on investor assessments of the industry’s financial prospects in the wake of new regulatory developments, even though our methods do find evidence of stock market reactions to other events, such as bankruptcies of other companies. The very actors with financial stakes in understanding the impact of regulation on the coal industry appear to act as if they never bought into the regulatory “war on coal” narrative.

Our findings are consistent with broader evidence about the effects of regulation and with an underlying political economy of regulatory scapegoating, according to which actors in a declining industry prefer to blame regulation rather than competitive factors for their businesses’ decline. By calling attention to the pervasive incentives for scapegoating and cheap talk by politicians seeking to be saviors, we offer an account that can explain the mismatch between our findings and the rhetoric of the “war on coal,” and along the way we also show how important it is for courts, government officials, and the public to demand agencies seek evidence when making regulatory decisions instead of relying on political rhetoric.