The Obama administration handed environmentalists another victory this week. The U.S. EPA has halted development, at least for now, of one of the most controversial coal plants on the drawing boards, a 1,500-megawatt plant proposed in New Mexico.

The decision is the latest evidence that it’s becoming all but impossible to build conventional coal plants in the U.S., largely because of concerns over global warming.

It's also a major setback for the curious coalition behind the plant, known as the Desert Rock Energy Facility.

The struggling Navajo Nation, which is the U.S.'s largest Indian reservation, badly wants the plant, saying it will create jobs and income for its 200,000 residents, many of whom are poor.

Just as poor countries like China and India have argued that they should not be subject to mandatory controls on their carbon emissions, the Navajos say they are entitled to exploit their energy resources to raise their standard of living.

In his State of the Navajo Nation speech just last week, Joe Shirley Jr., the president of the nation, said:

"The Desert Rock Energy Project was envisioned as a way to make use of our abundant resources of coal, and to bring economic prosperity to our people. Simply stated, it is the most important economic, environmental, and energy project the Navajo Nation has ever undertaken."

It's also a disappointment for Sithe Global Power, the power company developing the facility, which is owned by the Blackstone Group, the big private equity firm led by multi-billionaire Stephen A. Schwarzman. He is a multi-billionaire. Sithe said the plant could be built for about $3 billion, an estimate critics said was way low.

In 2007, I wrote a column called Blackstone’s Coal Problem about the Desert Rock controversy. Of course, Blackstone has more than a coal problem these days: Its stock, which went public in 2007 at $31-a-share, now trades for less than $9.

After the EPA decision was announced, I called my friend and former FORTUNE colleague Theo Spencer, who now works on coal and climate issues for the Natural Resources Defense Council. NRDC was one one of a number of environmental groups including Earthjustice and the Environmental Defense Fund that fought hard against the plant.

Theo called the EPA decision "a massive setback for Sithe and Blackstone," and said the EPA decision raises a host of legal issues that will make it hard for other conventional power plants to be built.

Not only do those plants face fierce environmental opposition -- it's becoming harder to raise money for coal plants because of uncertainty surrounding federal regulation of global warming pollutants, and the difficulty in knowing the cost of untested technology to capture and store CO2 emissions.

Jeff Holmstead, former assistant administrator for EPA's Office of Air and Radiation under the Bush Administration and now head of the Environmental Strategies Group at Bracewell & Giuliani, which represents Sithe, said EPA's motion came as a complete surprise. According to the Gallup Independent, Holmstead said:

"I've worked on environmental issues for over 20 years, and I've never seen anything like it. I don't think anyone ever imagined that the new team at EPA would seem to have such little regard for due process or basic notions of fairness. Everyone understands that a new administration has discretion to change rules and policies prospectively.

"But I've never seen any administration try to change policies and rules retroactively."

A dissident group of Navajos argued all along the developing solar and wind power would do more for the economy of Navajo Nation, also known as Dine. The dissidents commissioned a 160-page report which argued that Desert Rock violated ancient Dine law.

"Mother Earth and Father Sky is part of us as the Dine, and the Dine is part of Mother Earth and Father Sky," the report said.

It looks as if the EPA handed a victory for Mother Earth and Father Sky and a defeat to King Coal.

_{Image courtesy of Desert Rock Energy Project}