NOTE: Just in the nick of time Fred Thompson is back with a two-part long-form blog piece on coal ports in the Northwest. Today (Thursday) is part two and part one posted yesterday (Wednesday)
UPDATE ON COAL PORTS II
At the beginning of
this semester, one of the teams in my cost benefit class took on the assignment
of looking at Oregon's coal terminal projects. I asked them to think about the
following arguments reported in The
Oregonian:
PRO
* The projects would
create hundreds of Northwest jobs, boost tax revenues and preserve U.S. mining
jobs.
*Exports would
increase Asia's supply of "clean coal" and, thereby, improve their quality
of life; Powder River Basin coal, like coal from Indonesia, is relatively low
in sulfur and mercury and high in BTU content.
* China's newer
fleet of coal-fired power plants is more efficient than America's, but its
mining is far more hazardous, particularly at the marginal mines likely to be
displaced by U.S. exports.
CON
* Exports would
increase Northwest diesel and coal dust pollution, especially near marine
terminals, squeeze rail and barge routes, and split communities with long and
loud coal trains.
* Powder River Basin
coal from Montana and Wyoming would help Asia add electricity A reliable U.S.
supply would encourage more Asian coal plants. That would reduce prospects for
clean power, and boost pollution and global warming.
My students turned
in their final report last Thursday, but we have talked about the topic for an
hour or so each week throughout the term and shared sources. So my thinking has
been influenced by theirs and vice versa.
To address the first
PRO claim, we did quick and dirty analyses of the regional economic effects of
the two Oregon projects using IMPLAN ProTM input-output data
and software. Both indicted substantial gains, but it is our assessment that
the net benefits deriving from those gains are largely contingent on the state
of the economy overall. With Oregon unemployment rates still over 8 percent, it
is reasonable to count the full simulative effect of these infrastructure
projects, which is to say the local multipliers from building and operating these
projects are currently >2. Hence, the boost to state product from the
Morrow-Pacific project alone would be nearly .5 percent.
In the long run, as we approach full employment, multipliers
will fall. Indeed, at full-employment, the net economic benefits from these
projects will be approximately equal to their net increases in incomes and tax
payments, both direct and indirect. In other words they will promote economic
development only if they replace less productive jobs with more productive
jobs. By regional standards the expected average wage associated with these
projects, about $60,000 ($50-$80 thousand) per annum looks pretty good
We largely
discounted the next two PRO claims. We subsumed the second under our discussion
of the effect of the projects on pollution and global warming. The third was
simply too distant to influence the decisions contemplated here.
On the first CON
point, we concluded that these issues are not relevant. If the projects fail to
mitigate these problems adequately, they will simply not be permitted to
proceed. The Morrow Pacific project has done so. The Kinder Morgan project has
not, but that is not to say that it cannot.
The second CON claim
is the crux of the matter. The effect of the projects on pollution and global
warming will depend on the quantity Powder River coal to the Far East shipped
and the effect of those shipments on the total quantity of coal consumed. If
all four plants were to be completed shipments would probably be about 100
million metric tons. As I have indicated, at this point, there is little chance
that all four of the remaining terminal projects will be completed, so there is
considerable uncertainty about the quantity of shipments.
The CON claim presumes that
there would be no substitution of Powder River coal for local supplies whatsoever,
so that Asian coal consumption would increase by the full amount of shipments
and none of the potential benefits from substituting clean coal for
dirtier coal would be realized. That is the most pessimistic scenario. In
contrast, proponents of these projects imply that shipments would have no
effect on Asian consumption (consumption would remain the same) and all of the
potential benefits from substituting clean coal for dirtier coal would be
realized. This is the rosy scenario. I think the most likely scenario would
involve some increase in Asian coal consumption, primarily because the
availability of cleaner coal might delay the transition to cleaner
sources of energy. However, it is also
likely that this increase would be largely offset by the benefits from
substituting clean coal for dirtier coal. I also think that the rosy scenario
is at least as likely as pessimistic one, although IMHO both are highly
unlikely.
In any case, this
issue should be put in context. The success or failure of efforts to fight
greenhouse gases does not depend upon the success or failure of these projects.
There are plenty of sources of low-cost coal available to Asia. South
and East Asia consumes 6 billion metric tons of coal per
annum. China alone, for example, used
approximately 4.5 billion tons of coal last year, increasing at more than 10
percent per annum. The Morrow Pacific project proposes to ship 4.4 million tons
a year, perhaps increasing to 8.8 million tons. Adding up all the proposed US
projects, Kinder Morgan’s Port Westward project, the Millennium Bulk Terminal
in Longview, Washington, and the Gateway Pacific Terminal project in Cherry
Point, Washington, on Puget Sound near Bellingham, would add about 100 million
tons to that total (1.7 percent), this is less than ¼ the annual increase
in Chinese consumption alone. The fight against greenhouse gases depends up the
enactment of measures such as carbon taxes, the payoff to investments in
technology, and, to a lesser extent, trade policy. At best, this is a sideshow.
Nevertheless, it should be acknowledged that there is
evidence that increased shipments of US coal to Europe (or, perhaps, more
correctly the availability of reliable supplies of low cost thermal coal) have
delayed its transition to cleaner sources of energy and may have, therefore,
increased future ambient greenhouse gas stocks. Would selling Powder River Coal
to Asia have a similar effect?
If US coal can penetrate Asian markets only by reducing
prices, the answer is probably yes. But I am not persuaded that is the case. While
it is true that increased reliance on natural gas in the US has led to
substantial reductions in domestic coal prices, making US coal potentially more
attractive to East Asian importers, once transportation costs are taken into
account, the price of US coal, especially cleaner coal from the Great Basin, is
often higher than the price of locally mined coal in East Asia. Evidently the
reason that US coal is preferred in East Asia to local coal is that it is
cleaner. Compared to the lignite mined in China, for example, burning western
coal from the US generates less CO2, Carbon monoxide, and nitrogen oxides per
unit of energy, 30-60 percent less sulfur dioxide and particulate matter, and
one-tenth the oxides of mercury. Burning imported cleaner coal in Chinese
coal-fired power plants could, therefore, reduce global greenhouse emissions, and
will reduce most other kinds of air pollution.
Would that slow the transition to alternative, cleaner
energy sources? Right now, East Asia wants Powder River Basin coal, because it
is cleaner than its local coal. However, Asians are much less constrained than
Europeans with respect to energy access and likely to be a lot less fussy about
using alternatives to coal like nuclear power, methane hydrates, algal biofuel,
or natural gas from fracking. Many of Asia’s newer coal-fired power plants
could be converted to natural gas. China, for example, has more shale gas than
the United States or so we are given to understand. It is not unlikely that
Asians will increasingly pursue these options, to the extent that they can
afford them. That is really the only hope we have that their greenhouse gas
emissions will be abated, but it is not I think entirely a vain hope.
In the long run the
greenhouse gases produced in the Far East will depend not on the availability
of coal, but on the rate of transition to green technologies, which will depend
on the willingness and ability of the East Asians to pay to make the
transition. The richer they are, the more environmental quality they will want
to buy. Environmental quality is a superior good. So we should do everything in
our power to make them (and us) richer.
Initially, many of Keystone
XL’s opponents implicitly took the ‘no effect’ position. They argued that XL is
unneeded, that XL’s only effect would be to make the route traveled by crude
from Alberta to Texas less circuitous, and that existing pipelines and
railroads have more than enough capacity to move Canadian crude to the US: “Keystone XL’s
capacity won’t be needed until sometime after 2020 at the earliest and maybe
not until after 2030.” Consequently, most of the opposition focused on XL’s
threat to the Ogallala Aquifer and the environmentally sensitive Sand Hills
area of Nebraska. It was only after Keystone changed XL’s proposed route to
avoid the Sand Hills that opposition coalesced around the argument made all
along by XL opponent James Hansen that “If
this project gains approval, it will become exceedingly difficult to control … exploitation of tar sands [which] would
make it implausible to stabilize climate and avoid disastrous global climate
impacts.”
