Why Are Solar Stocks Down After Obama's Carbon Announcement?

On Monday, U.S. president Barack Obama announced what he called the "single most important step America has taken in the fight against global climate change." He introduced the nation's first-ever limits on carbon emissions by power plants.

The plan will aim for a 32 percent reduction in carbon emissions by 2030, a slightly more ambitious target than the 30 percent proposed last year.

And although the United States is responsible for only 5 percent of global carbon emissions, the Obama Administration hopes policy will encourage similar action by other countries.

Coal On Edge

The coal industry is reeling following the announcement. Peabody Energy Corporation BTU, the largest private sector coal company in the world, is down 10 percent. "Coal is a dead industry walking," Phil Davis, founder of PhilStockWorld.com, told Benzinga.

Peabody issued a statement on Monday urging further action by courts, Congress, state governments, and consumer groups to help turn back the new EPA regulations. According to Peabody, the carbon restrictions would punish families and businesses through increased energy costs while having no notable benefit under climate theory.

The coal industry has received support from Republican in Congress -- Congressman Mitch McConnell (R- KY) was reelected in 2014 on the slogan "Coals. Guns. Freedom."

Solar Too?

But curiously, solar stocks are down as well, even though a shift away from carbon-based power would seemingly encourage renewable energy. Indeed, most analysts and industry insiders expected the solar sector to be one of the clear winners of Obama's climate initiative.

Nevertheless, Canadian Solar Inc. CSIQ and Sunedison Inc. SUNE are down 8 and 4 percent respectively.

But Davis believes that the downturn in solar companies' shares may not be the direct result of the carbon emissions limits. Instead, he highlighted that "China, the world's largest buyer of solar, is slowing considerably and [that] government are being diverted away from solar infrastructure towards propping up the stock market."

He added that investors may have been disappointed that the EPA policy announcement didn't include "hoped-for funding in solar."

Therefore, while the cap on carbon emissions may be good for solar energy, that positive effect is being weighed down by other factors.