Coal exports, a favorite topic here at Wonkblog, have become a major environmental issue of late. Coal use is shrinking in the United States thanks (in part) to 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 story. Large U.S. mining companies such as Arch Coal and Alpha Natural Resources have seen their share prices tumble of late. They’re 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 to Asia. In essence, we’d be exporting our carbon pollution overseas. In return, 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 the question: Would blocking these export terminals have any impact on the enormous growth in coal use in places such as China? Actually, yes. There’s some evidence that it could matter quite a bit.
At first glance, it may seem like the United States doesn’t have much sway over China’s energy-gobbling habits. 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 a tiny fraction of this market — because of how China’s rail and port infrastructure is set up, the country gets most of its coal from Indonesia and Australia:
Still, as a recent and fascinating 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 domestic coal China can use, thanks to railroad and shipping bottlenecks from the mining 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.)
As a result, China is likely to see a spike in coal 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. (So far, the U.S. has been supplying China with small amounts of coking coal, which is used for iron and steel production and which is relatively scarcer in China.)
And if U.S. exports lead to a glut in China, that will push down prices. If that happens, Chinese power plants and factories are likely to burn even more coal and use the stuff less efficiently. David 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 very sensitive to coal prices:
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.