Coal exports, a favorite topic at Wonkblog, have become a hot environmental issue. Coal use is shrinking in the United States because of cheap natural gas. So coal companies are now building export terminals in the Pacific Northwest to ship their surplus to China.
Over at Grist, David Roberts has an excellent overview of this tale. Large U.S. mining companies such as Arch Coal and Alpha Natural Resources have seen their share prices tumble of late. They’re now resting their hopes on six new export terminals in Oregon and Washington, which, when built, will enable the Pacific Northwest to export more than 150 million tons of coal from Wyoming’s Powder River Basin to Asia. We’d be exporting carbon abroad. So environmentalists are trying to bog these projects down, and Oregon Gov. John Kitzhaber (D), for one, has called for a full review of the terminals.
But here’s a question: Could blocking these export terminals actually have any impact on the enormous growth of coal use in places such as China? There’s some evidence that it could matter quite a bit at the margins.
At first glance, it may look like the United States can’t have much influence over what China does. China, after all, has plenty of its own coal, boasting the second-largest reserves in the world. In 2010, the country imported less than 5 percent of its coal from overseas. And the United States makes up only a fraction of this market — because of how China’s rail and port infrastructure is set up, it gets most of its coal from Indonesia and Australia:
Still, as a recent report (pdf) from the Carnegie Endowment explains, Chinese coal imports are likely to grow enormously in the coming years. For one, Chinese coal use has been growing at a rate of nearly 6 percent each year. Second, there are limits to how much of its own coal China can use — there are railroad and shipping bottlenecks from the coal centers in Shanxi, Shaanxi and Inner Mongolia.
What’s more, the Carnegie report notes, the Chinese government is becoming increasingly sensitive to the environmental damage wrought by domestic coal mining — as well as the growing number of protests over mining safety. (According to official statistics, 6,027 Chinese miners died in 2004, though the real number is most likely much higher.)
For all of those reasons, China is likely to increase its imports in the coming years. Much of that will come from Indonesia and Australia, since China’s import infrastructure is geared toward those two countries. But many analysts expect the United States to play an increasingly crucial role in coming years.
And if U.S. exports lead to a coal glut in China, that will push down prices. In turn, Chinese companies are likely to burn more coal and use fossil fuels less efficiently. Roberts points to a recent paper (pdf) by Thomas M. Power, a former economics professor at the University of Montana, suggesting that Chinese coal habits are extremely sensitive to price:
Opening the Asian import market to dramatic increases in U.S. coal will drive down coal prices in that market. Several empirical studies of energy in China have demonstrated that coal consumption is highly sensitive to cost. One recent study found that a 10 percent reduction in coal cost would result in a 12 percent increase in coal consumption. Another found that over half of the gain in China’s “energy intensity” improvement during the 1990s was a response to prices. In other words, coal exports will mean cheaper coal in Asia, and cheaper coal means more coal will be burned than would otherwise be the case
Coal prices in Asia hit a 16-month low recently, thanks to a deluge of coal from the United States and Colombia, so to some extent this is already starting to happen. And U.S. coal exports to China are still tiny — reaching just 5 million in 2012. (India is another possible outlet — as the New York Times recently reported, Indian power producers have been desperately trying to import coal from abroad rather than deal with India’s dysfunctional mining industry, but prices are often too high.)
Now, the world coal markets are fairly complex and it’s not clear just how big a role U.S. exports will end up playing in the Chinese or Indian markets. As Michael Levi of the Council on Foreign Relations points out, a lot depends on whether U.S. coal displaces coal from places such as Indonesia or Inner Mongolia.
Still, at the margins, supply and demand matters. Power’s point is that more coal from the United States will cause Asia to use more coal. Countries like China will have less incentive to develop alternatives or become more efficient. Which, in turn, means more carbon dioxide in the atmosphere than there otherwise would be.
That’s why many environmentalists are looking for ways to, as Roberts puts it, “keep the damned coal in the ground.” Of course, U.S. coal-mining firms, now struggling to stay afloat, aren’t likely to endorse this sentiment.