Twenty-five years ago, the U.S. tobacco industry’s future looked bleak. The health consequences of smoking had seeped into the collective American consciousness, and the industry was fending off a barrage of liability lawsuits. Nevertheless, a few cigarette executives found room for optimism, comforted by the fact that a seemingly infinite overseas market could more than make up for losses at home. “No discussion of the tobacco industry … would be complete without addressing what may be the most important feature on the landscape, the China market,” said Rene Scull, vice president of Philip Morris Asia, in 1986. “In every respect, China confounds the imagination.”
Coal is the cigarette of our new age, and not just because burning it causes respiratory problems. Demand for one of the dirtiest fossil fuels is expected to stagnate or diminish here in the U.S. So coal companies — particularly those that mine the vast reserves in the Powder River Basin in Wyoming and Montana — are looking for a new place to peddle their wares. They’ve found it in China. “China right now is having blackouts because they don’t have enough coal to fuel their electricity facilities,” Gregory Boyce, CEO of the world’s largest coal company, Peabody Energy, told CNBC this spring. “They continue to import more and more coal and they continue to look for coal resources across the globe. So we don’t see any signs of that slowing down.”
The Powder River Basin has sufficient coal to help light Chinese cities for years to come. The problem is getting it there. Existing ports in the northwestern United States cannot handle exporting such large quantities of coal, prompting the coal industry to propose building two new ports.
The Powder River Basin has sufficient coal to help light China for years — the problem is getting it there.Peabody has partnered with SSA Marine in hopes of building a new terminal near Bellingham, Wash. Arch Coal is working with an Australian company, Millennium Bulk Terminals, on a proposal to turn an old Reynolds Metal site into a coal terminal on the Columbia River at Longview, Wash., just downstream from Portland, Ore. The Longview proposal was put on hold this spring after leaked internal documents showed that the proponents planned on building a bigger terminal than they had applied for, but they say they will re-apply.
Fearful that mining and burning huge quantities of Powder River coal will worsen global warming, environmental groups have targeted the port projects as a vital chokepoint. This summer, green activist and author Bill McKibben visited Bellingham to rally strong local opposition to the Gateway terminal. And the Sierra Club and Earthjustice have buttressed the legal fight against it, helping to convince the state to deem an old permit for development at the terminal site invalid.
The battle over the ports is reminiscent of a far more acrimonious fight over efforts to ship Alberta tar sands oil to Texas refineries via the proposed Keystone XL Pipeline — a project that also is in limbo following President Obama’s decision to delay a ruling on the pipeline until after the 2012 presidential election. Environmentalists believe both struggles are crucial to the effort to steer the world away from fossil fuels and onto renewable sources of energy, particularly given the lack of international action on global warming.
The U.S. has been selling coal overseas since World War II, annually shipping 30 million tons or more to countries as far-flung as Morocco, Egypt, Italy, and Germany. Exports shot up to around 100 million tons in the early ‘80s — thanks to high oil prices — and the early ‘90s, when Europe phased out much of its coal mining. Yet even a few years ago it would have seemed absurd to think that China would want U.S. coal.
China has enormous coal reserves, and its thousands of mines churn out more than 3 billion tons each year — more than the U.S., Russia, Australia, and India combined. But it’s an industry in crisis. In early November, the world got a glimpse into the turmoil when an explosion ripped through a mine in a southwestern province of China, killing 43. More than 500 coal miners have been killed in China this year. Ninety percent of China’s coal reserves are in arid, environmentally sensitive regions. Inadequate rail capacity between coal mining centers and power plants has forced the mines to ship some 500 million tons of coal per year by truck, which is costly, dirty, and has caused traffic jams that take weeks to clear.
Today, China burns about 3.7 billion tons of coal each year, or roughly three times what it consumed in 2000 and three-and-a-half times what the U.S. uses. It continues to build new coal plants at a blistering rate. (In
China burns about 3.7 billion tons of coal each year, more than three times what the U.S. uses.2010, China, already the world’s number one emitter of carbon dioxide, became the world’s largest energy consumer.) Yet when the Chinese government fully deregulated coal prices in 2006, utilities on the heavily populated coast suddenly saw prices for their favored fuel skyrocket, causing them to look overseas for new supplies. In 2009, China went from being a net exporter to a net importer of coal, bringing in about 100 million tons per year, mostly from Indonesia and Australia.
That same year, the electric power sector in the U.S. suddenly cut its coal use by 10 percent. The recession, not environmental concerns, caused demand to diminish, but the slump is an indication of what’s to come even if the economy rebounds. The bulk of the nation’s coal-fired power plants are more than 30 years old. Pollution controls are often outdated, and utilities face the choice of either expensively updating the controls, or retiring the plants altogether, with more and more choosing the latter. The Edison Electric Institute has announced that utilities will take 48,000 megawatts of coal-burning units off-line by 2022, roughly 14 percent of total coal-fired electricity generation. More than 200 power plants will be retired in the next several years, utility executives say.
Meanwhile, lawsuits from the Sierra Club and other groups, along with a dearth of financing thanks to regulatory uncertainty regarding greenhouse gases emissions, have kept new power plant construction at bay. In a 2010 report, Credit Suisse predicted that domestic coal demand could drop by as much as 15 to 30 percent over the next decade.
Still, the U.S. coal industry is ready to meet a growing demand. The gargantuan mines in the Powder River Basin operate on a massive scale, with 200-foot-high draglines gouging into eight-story-deep coal seams. Dozens of mile-long trains slide out of the basin’s mines each day en route to distant states; collectively, they carry about 40 percent of the nation’s electricity-generating coal. Because the mines are open and above ground, coal is extracted more safely (Wyoming’s has only had six coal-mining fatalities in the last decade), more efficiently, and more cheaply than anywhere else in the world.
Coal exports from the U.S. climbed from 60 million tons in 2009 to more than 100 million tons in 2011. Most of that coal is going to Canada, Mexico, and Europe, but for the first time substantial quantities are also going to China, including about 4 million tons from the Powder River Basin. The flow, however, is being hampered by the lack of major coal shipping terminals on the U.S. West Coast.
The Gateway Pacific Terminal near Bellingham would allow Peabody and other companies to ship as much as 50 million tons of coal to the Pacific market annually, and the Longview port near Portland could add another 60 million tons. The prospect is anathema to many environmentalists, who see exports as a way to get around their efforts to hamper coal burning in
Environmentalists see exports as a way to get around their efforts to hamper coal burning in the U.S.the U.S. Moving all that coal, they contend, will also jam rail lines, result in tons of coal dust being shed from trains into communities, and hurt fish near the terminals.
Targeting proposed coal export terminals is the environmentalists’ best bet politically, since the chances of stopping coal-mining in Wyoming or Montana are slim. Montana Gov. Brian Schweitzer has personally intervened in the terminal battles on the side of the coal companies, and former Wyoming Gov. Dave Freudenthal, who heavily courted China as a trading partner during his tenure, is a director at Arch Coal.
Opponents say that the long-term effect of the exports could be devastating. Thomas M. Power — a former economics professor at the University of Montana who has watched the natural resource industry in the West for years — says that by adding to China’s overall coal supplies, U.S. exports will help bring prices there down. According to Power, that will give Chinese utilities the incentive to burn more coal for power, and take away the main reason for making power plants more efficient. “There is nothing startling or controversial about these results,” writes Power in a paper published this summer by the Sightline Institute, a Seattle-based think tank. “Price and cost matter. Lower prices and costs encourage consumption. Higher prices and costs discourage consumption.”
If U.S. suppliers put enough coal into the global market, it could potentially lower prices for everyone from Germany to Japan, says Power. That would give those two nations, in particular, a new incentive to choose coal as their alternative to Fukushima-tainted nuclear power. Overall, U.S. exports would then result in a net increase in global greenhouse gas emissions.
Or not. Richard K. Morse, the director of research on coal and carbon markets at Stanford’s Program on Energy and Sustainable Development, predicts a subtly different scenario, with dramatically different outcomes. Opening up U.S. coal supplies to China’s huge demand will increase coal prices for U.S. utilities, he says. That will further incentivize domestic utilities to switch from coal to natural gas, which emits about half the greenhouse gases of coal.
As for China, Morse believes its hunger for electricity is so great that it’s currently incapable of replacing a significant amount of coal generation with cleaner power sources, regardless of coal’s cost. Replacing China’s dirty coal with the relatively low-sulfur coal from the Powder River Basin, he says, would help to clean up the air in China’s coastal cities and might take pressure off the nation’s coal mining sector.
“The more expensive China makes global coal supplies, the more competitive cleaner energy becomes in the developed world and the lower will be CO2 emissions,” says Morse. “In a world without a price on carbon, we can only hope that China takes all of the rest of the world’s coal it can get.”
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Even during these hard economic times, coal company profits have soared. Peabody is having a record year. Its rival, Arch, is sending more coal overseas than ever before, proving that it doesn’t matter if the U.S. quits coal, so long as the rest of the world keeps puffing away.