Leaking Coal to Asia

portofoaklandThe view from my window high up in the ivory tower is spectacular. Through my open window I breathe in the unpolluted air of knowledge and bask in the glow of theory. Recently I climbed down to attend a hearing at Oakland’s city council about the possible construction of a coal export terminal right here smack dab in the heart of the most liberal metropolis in North America.

Here’s what’s happening. A developer proposed a plan for a new export terminal on an old army base next to Oakland harbor. This is good news. Export terminals lead to lots of jobs and ancillary economic activity. West Oakland is a relatively low-income community with high rates of unemployment. I was excited when I heard about this initially. Recently, however, the proposal was modified to allow for the annual shipment of 4 to 5 million tons of Utah coal abroad, which amounts to roughly a 10% increase in US exports. Why should we care about what gets shipped through a terminal? Well, let me count the ways.

At this hearing, some very fancy lawyers testified that we should not worry about any local negative health consequences from this shift. I am not so sure. We could envision coal dust escaping from the rail cars would end up in kids’ lungs – no matter how covered the cars are. Plus, I would imagine that the ships and trains themselves would lead to increases in local air pollution. Ships are one of the main sources of air pollution in the Bay Area. And, ships that bring coal abroad are not the same high quality shiny new ships we use to bring containers and cars from here to there and back.

More globally, we (finally) have serious regulation at the federal level that address the negative externalities from climate change. Most significantly, the Clean Power Plan will lead to a significant decrease in demand for US coal. Coal, as even my seven year old knows, is the main culprit when talking about greenhouse gas emissions. This is of course bad news for the producers of coal. If demand shifts in, price drops and you sell less at a lower price. Unless you find new markets for your coal, this carbon stays in the ground. Which is the point of climate policy. Period. Well, if you get a shiny new export terminal and can ship coal abroad, that sort of fixes things for you as you now have access to a new market and the coal, whose combustion results in increased emissions of a global pollutant, gets burned anyway.

Countries throughout Asia are burning coal like it’s free (and in some cases it sort of is). Getting more coal of higher quality from the US is a great thing from the Chinese perspective. But from a global perspective it likely is a loser. Here is why I think so:

  • I am sure half the economists reading this blog would argue that this high quality coal would displace lower quality higher sulfur coal one for one in China and this would make the world better off. In theory, this might be the case. But over time, this new source of coal generates further incentives to structure your energy economy around coal. Better coal might lead to cleaner air in some parts, but from a climate change point of view, what you want is an energy sector less dependent on coal in the long run. More US coal, which drives down local prices, does not help this objective.
  • This proposal undermines the US federal government’s and California’s efforts to curb greenhouse gas emissions. Getting this coal to furnaces abroad guts part of the stated goals of the Clean Power Plan and undermines the point of California’s aggressive climate change goals. We would use the most progressive state in the world on this issue as a launching pad for coal to the rest of the world.

What baffles me about this is the political economy of what is happening. I understand that local leaders in West Oakland are pushing very strongly and convincingly for more jobs in their community. This project would likely lead to increased employment for youth, raise incomes and result in a variety of ancillary benefits that come along with these welfare improvements. I understand that the pushers of coal want a platform for their carbon. If you have something valuable, you want to sell it. The Oakland city council is trying to determine what the right thing is for their community, which is a tough thing to do since the global impacts are not part of their charge.

But where is the state? I would assume that Governor Brown, who has pushed hard for climate regulation and has even talked to the Pope about the issue, would be his usual vocal self in this case. He also has a war chest to come step in. Yes. I am talking about cap and trade revenue. We are currently using some of the early revenue to build a high-speed train project, which will initially connect the Metropolis of Merced with Bakersfield. There are the delta tunnels too. What we should do with cap and trade revenue is many things, but helping communities who are disadvantaged by climate policy is certainly one of them. This assistance could be in the form of job training programs or other job creating initiatives targeted at people disadvantaged by the veto of such a terminal.

At the very least it’s time for a strong signal from Sacramento against new construction of carbon export terminals in California. The existing ones might have some spare capacity, but building new ones undermines California’s environmental legacy and global climate leadership role.

About Maximilian Auffhammer

Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.
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26 Responses to Leaking Coal to Asia

  1. I agree that a very sensible use for cap-and-trade revenue would be to compensate disadvantaged communities. The use of a very substantial chunk of the revenue by the Governor for his train is most unfortunate.

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  3. Cal says:

    Keep it in the ground! See the battle on this same issue up in Bellingham, WA. The coal lawyers fight dirty, no coincidence. Don’t let them win.

  4. I couldn’t agree more. #keepitintheground

    I address why we need to stop coal export terminals in this short blog post: http://www.koomey.com/post/34571151090

    There are also the flawed auctions in the Powder River basin, which are essentially non-competitive, and offer the coal at well below market rates: http://www.koomey.com/post/25830484828

    And of course, the non-CO2 externalities alone are enough to make coal fired electricity net negative value added to the economy (#coalisnotcheap). Coal is only cheap when you don’t count all the costs:

    Muller, Nicholas Z., Robert Mendelsohn, and William Nordhaus. 2011. “Environmental Accounting for Pollution in the United States Economy.” American Economic Review vol. 101, no. 5. August. pp. 1649–1675. [https://www.aeaweb.org/articles.php?doi=10.1257/aer.101.5.1649]

    Epstein, Paul R., Jonathan J. Buonocore, Kevin Eckerle, Michael Hendryx, Benjamin M. Stout Iii, Richard Heinberg, Richard W. Clapp, Beverly May, Nancy L. Reinhart, Melissa M. Ahern, Samir K. Doshi, and Leslie Glustrom. 2011. “Full cost accounting for the life cycle of coal.” Annals of the New York Academy of Sciences. vol. 1219, no. 1. February 17. pp. 73-98. [http://dx.doi.org/10.1111/j.1749-6632.2010.05890.x]

  5. Larry Dale says:

    FYI, you can watch coal being loaded onto cargo ships in the Richmond harbor–saw it last week from the water.

  6. What would happen if the WORLD POPULATION went on a ration stamp program similar to the one implemented during WW!!?
    I’m 75 years old, not a baby boomer, so I am able to remember seeing ration stamp booklets in my home after the war.
    It seems to me that a permanent rationing system would be the single greatest economic leveler and the best way to stop androgenic global warming.
    We could even ration breeding rights so as to get the proper population density per region.
    Another scheme wold be to restrict air travel, not on price, but on Body weight index. Fat folks get your act together (apologies if you are gravitationally or circumstantially challenged).

  7. Ben Gould says:

    Just so you know, a large portion of cap and trade revenue is already earmarked to help poor communities mitigate the disproportionate effects of climate change and pollution: http://insideclimatenews.org/news/20140625/calif-earmarks-quarter-its-cap-and-trade-riches-environmental-justice

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  9. “Plus, I would imagine that the ships and trains themselves would lead to increases in local air pollution. Ships are one of the main sources of air pollution in the Bay Area.”

    The U.S. Navy first demonstrated a reliable, zero-emission form of naval propulsion in 1954. Of course, the business case for submarines, aircraft carriers, and arctic icebreakers is substantially different from commercial cargo transport. Perhaps, in light of the global warming issue and ever-increasing public/political willingness to pay for local air quality, civilian nuclear marine propulsion deserves a re-examination.

    • mcubedecon says:

      The security risks of civil nuclear-powered navigation are unimaginable. That’s a show stopper right there. Then we have to move on the need to staff ships with nuclear engineers….

      • The security risks are “unimaginable”? Here’s my attempt at imagining a scenario:
        —————————————————–
        A flotilla of speedboats approaches lone nuclear cargo vessel in the middle of the ocean. Before the speedboats can reach the ship, the captain pulls a switch to activate a GPS warning beacon and gets on a satellite phone to alert naval authorities of the situation. The terrorists board the vessel and kill everyone on-board. As the terrorists have trained to operate the ship themselves, they begin sailing to the major port city where they intend to initiate a meltdown. No use making a mess out in the middle of the ocean – the huge volume of water will dilute all the contamination before it can seriously harm anyone.

        After a day or two of sailing – long before the terrorists get anywhere close to civilization – three military helicopters appear on the horizon. The terrorist have no where to run; the top speed of their hijacked vessel is 25 knots. But they still have their speedboats, which are mounted with heavy machine gun turrets! As the speedboats race off to meet the approaching helicopters, the helicopters launch laser-guiding homing missiles, sinking each speedboat without much of a fight. The helicopters approach the ship and spay the deck with armor-piercing, forcing the terrorists to take cover. The helicopters come to a hover over the ship and drop ropes, from which teams of Navy Seals quickly descend on to the deck. The ensuing firefight last a few hours. As the terrorists lay dying, they think to themselves: “Gosh, we really should have gone for Greg’s ‘mass shooting at a mall’ idea. This whole nuclear ship hijacking sounded really cool, but I guess it didn’t turn out to be as effective as we thought.”

        A few weeks later, an administrative staffer in the Pentagon faxes an invoice of a few dozens of millions of dollars to the hijacked ship’s insurance company. He yawns and decides to go refill his cup of coffee while the fax machine does its work.
        —————————————————————-
        Okay back to reality. What constitutes a show-stopper? Oil tankers are regularly hijacked in the Gulf of Guinea, off the Horn of Africa, and in the Straights of Malacca, yet the security risks of oil aren’t a show-stopper. A creative terrorist organization could easily cause an oil spill with the same weapons and manpower postulated in the above scenario (plus some explosives, probably). They don’t, only because oil is such a worthwhile commodity for theft.

        The security risks of a floating, mobile nuclear reactor under civilian control haven’t deterred the Soviets/Russians from sailing civilian nuclear icebreakers in the Arctic for over fifty years. The security risks didn’t stop the U.S., Germany, or Japan from building demonstration nuclear cargo vessels, either. Nor did they stop Lloyd’s Register (world’s oldest marine classification society) from looking into the concept recently (http://www.ft.com/intl/cms/s/0/bd03a75a-00b5-11e0-aa29-00144feab49a.html#axzz3pzxFCGt4). The security risk does appear not self-evidently show-stopping.

      • As for the cost of employing nuclear engineers in the merchant marine, I checked what the Bureau of Labor Statistics to compare the median hourly wages of ship engineers and nuclear engineers. Hard to say exactly what kind of compensating wage differential you’d have to pay an otherwise land-based nuclear engineer to live the life of a sailor, though certainly plenty of former Navy nukes are well adjusted to it.

        Ship Engineer: $32.74/hr (http://www.bls.gov/oes/current/oes535031.htm)
        Nuclear Engineer: $48.30/hr (http://www.bls.gov/oes/current/oes172161.htm)

        A hefty wage gap, but that’s only for the part of the crew manning the propulsion system. In any case, labor equates to small beans in the context of a cargo ship’s overall operating cost, which is dominated by fuel (https://people.hofstra.edu/geotrans/eng/ch3en/conc3en/containeroperatingcosts.html). Using uranium instead of bunker oil would cut the fuel bill by a factor of 15 to 50 (depending on current prices of uranium and oil). With such a trivially cheap and radically energy dense fuel, slows steaming (https://en.wikipedia.org/wiki/Slow_steaming) and fuel tanks would be unnecessary. Faster trips and larger cargo holds would mean more revenue. Obviously, the investor would have to weigh the higher revenue and lower operating costs against a higher capital cost.

        • mcubedecon says:

          Two answers – 1) we’d have to first find the nuclear engineers and then second convince them that they want to live at sea. But even more importantly, most of the world’s merchant marine labor force is non-US citizens, and non-European. I’ll bet most come from nations that do not yet have nuclear weapons. Do we really want to train them as nuclear engineers?

          2) On the risk side, imagine how much those ships would worth to pirates (which are proliferating in many passages, not just Somolia.) The security risk of a tanker is simply not comparable. A port city won’t be wiped out by an oil spill, or even a tanker explosion. A Russian-controlled fleet of a very small number of icebreakers is very different than a global freighter fleet. And governments think of all sorts of ill considered stupid demonstration projects where bureaucrats fail to think through all of the implications. That’s not a useful endorsement. (I would have to pay to see the FT article on Lloyd’s so I can’t comment on that–I’ll just say the insurance industry missed the hurricane risk on the Gulf Coast for a long time too.)

  10. Joel Darmstadter says:

    If COP-21 fails to embrace a widely-supported CO2 tax or other market-efficient GHG emission deterrent, fragmented approaches like export restrictions may have to be considered. But don’t minimize the turmoil this might produce: diverse policy issues (Keystone XL, US crude-oil export restrictions,and overseas energy investments) would need to be evaluated in terms of their respective CO2 footprint. And don’t rule what other Pacific-coast ports (Seattle, Portland, Vancouver BC) may haVe up their collective sleeves. Nor can one be sure of retaliatory impulses or our trading partners. In short, let’s keep trade restrictions in abeyance. At least for now.

    Joel Darmstadter,Resources for the Future, Washington DC

  11. Maximilian Auffhammer says:

    Someone pointed out this little relevant nugget:

    In 2012, the Legislature passed Senate Bill 535 (De León) directing that, in addition to reducing greenhouse gas emissions, a quarter of the proceeds from the Greenhouse Gas Reduction Fund must also go to projects that provide a benefit to disadvantaged communities. A minimum of 10 percent of the funds must be for projects located within those communities. The legislation gives the California Environmental Protection Agency responsibility for identifying those communities. – See more at: http://www.calepa.ca.gov/EnvJustice/GHGInvest/#sthash.OpnGtPUo.dpuf

    • mcubedecon says:

      Max, this is highly relevant. I used your post to point out the relevance of compensating the those who lose in these policies to really close the loop on benefit cost analysis. Kaldor Hicks efficiency is too often used as an excuse to steal from the less powerful.

  12. Mike Carnall says:

    Interestingly, the country receiving the largest amount of US coal is the Netherlands. See: http://www.eia.gov/tools/faqs/faq.cfm?id=66&t=2.
    Mike Carnall

  13. Maximilian,

    The are no jobs or employment for youth, all jobs are with the Internation Longshore Worker Union for working the proposed Coal terminal and jobs for the for doing the construction of the facility. For the operation there are 100-116 jobs and thne construction maybe less.

    Ms. Margaret Gordon
    West Oakland Environmental Indicators Project
    No On Coal

  14. chrisgreacen says:

    I live up on Lopez Island — where we’ve been fighting the proposed Cherry Point coal terminal in nearby Bellingham. We stand to suffer greatly if one of the massive “capesize” single-hulled boats runs aground in the notoriously treacherous waters in this archipelago of hundreds of islands. And until the inevitable shipwreck happens, the ballast water they dump upon returning from China will introduce all manner of invasive marine organisms.

    Like the proposed Cherry Point terminal, the proposed Oakland terminal is downright goofy. China is sitting on huge reserves of frackable gas (the US EIA estimates 1.7 times the reserves of the US), and has made commitments to peak emissions by 2030. None of this is compatible with importing coal from the US. Any city that builds a coal export terminal with China in mind does so at its peril.

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  17. Who among this audience has not worked in corporate structures? You know… Long term goals, let alone future impacts, do not enter corporate consciousness. Immediate profit, always couched as “surviving the day” in corporate culture drives our global production machine like a whip; fear motivation always works! Do you want to survive? That’s what we are really asking the Chinese, rather: the global question. This paradigm means coal “is” cheap.

    The customer is always right… Low cost electricity fired by a long established infrastructure to burn ultra portable, low cost coal is Chinese economic “survival”. Let me say it again: “coal is cheap”! Coal is Chinese GNP driver #1. This is not going to change. Instead of trying to raise consciousness in a global system devoid of conscience let us instead get on-board with it — like there’s really a choice anyway.

    Get on-board, what does that mean? Get on-board with the real set of visceral motives that drive the problem. Power production is not based on coal, natural gas, diesel nor gasoline; it runs on what is available, portable, storable and cheap; big oil/coal simply fits that bill. Solar photovoltaics and wind, the main stays in our green renewable energy portfolio, are neither cheap nor storable as a power supply and the infrastructure is a geo-sprawl. Let’s come up with something different! We need a solution that competes toe-to-toe with and beats coal for cost of fuel, as well as production and storage infrastructure. The idea that we’ve arrived with solar and wind has to be smashed, they don’t work economically; if they did China would be the greatest non-green-house-non-criterion pollutant power producer on the planet! However, China interestingly, at great U.S. imported coal fired electricity demand, produces most of the solar photovoltaic panels Americans use here at a tremendous import cost savings. Cheap coal equals cheap solar panels, and the Chinese by scale are using almost none of them.

    If we cut off the coal to Asia now, who will manufacture our cheap solar panels? Coal and natural gas work economically. “The customer is always right”, so they saying goes. Let’s use cap-and-trade revenue to fund emerging green technologies that promise what coal delivers for less money. The only real solution is to produce clean power for lower cost than the dirt we use now — burn nothing — if we cannot get on board with that idea and embrace the only set of motives that will spur change in the next hundred year long run we embrace no change, we all embrace the problem today; talking about change is not the same as getting on board with it. We need power cheaper than dirt to turn off Chinese coal burn and ours, natural gas being the nuvo-coal-burn. In the mean time, today, in light of no real solution nor motive vetted by real action(s), I’m on board to build the new Oakland terminal and export the coal; with no real change it will get burned anyway. Let’s tax the exported coal to fund new technology grants to replace carbon with a cheaper solution(s), beat our collective swords into plowshares so to speak.

    To be continued…

  18. Itai says:

    What about an export tax? If they tax this coal to the extent of its estimated environmental cost, and it’s still competitive on the global market, would it not make sense to export it? This would be like exporting the electricity itself from a “well regulated” market, to which fewer people would object if it were technically possible. And Governor Brown would get some more money for his train.

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