How the U.S. could influence China’s coal habits — with exports

Coal exports, a favorite topic here at Wonkblog, have become a hot environmental issue of late.
Coal use is shrinking in the United States thanks (in part) to cheap natural gas. So coal companies are building export terminals in the Pacific Northwest to ship their surplus to places like 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, once 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. So, to prevent that, environmentalists are trying to bog these projects down. And they’re gaining momentum: Oregon Gov. John Kitzhaber (D), for one, has called for a full review of the terminals.

So here’s a question: Would blocking these export terminals have any impact on the staggering 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 look like the United States can’t have much sway over China’s energy-hungry 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 sliver of this market — because of how Chinese rail and port infrastructure is set up, China still gets most of its imported 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. And China’s domestic production can’t keep pace, thanks to railroad and shipping bottlenecks from mining centers in Shanxi, Shaanxi and Inner Mongolia provinces.

What’s more, the Carnegie report notes, the Chinese government is becoming increasingly sensitive to the ecological damage wrought by domestic coal mining — as well as to the growing number of protests over unsafe mining conditions. According to official statistics, 6,027 Chinese miners died in 2004, though the real number is probably higher.

As a result, China will likely try to import a much greater share of its coal in the coming years. Much of that will likely come from Indonesia and Australia, since China’s import infrastructure is geared toward those two regions. But many analysts expect the United States to play an increasingly crucial role in coming years. (To date, the U.S. has been supplying China with small amounts of coking coal, which is used for iron and steel production and which is less readily available in China.)

And if U.S. exports lead to a glut of coal 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, finding 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

To some extent, this has already started to happen. Coal prices in Asia hit a 16-month low recently, thanks to an overflow of coal from the United States and Colombia. And the United States hasn’t even seriously ramped up its exports yet. (India is another possible market for U.S. producers: As the New York Times recently reported, Indian power companies have been trying to import coal from abroad rather than deal with India’s dysfunctional mining industry, but they’ve been deterred in the past by high prices.)

Now, the global coal markets are complex and it’s still not clear exactly how important U.S. coal will prove to be for countries like India or China. As Michael Levi of the Council on Foreign Relations points out, a lot depends on whether U.S. coal augments or displaces production from countries like Indonesia.

Still, at the margins, supply and demand matters. The point of Thomas Power’s paper is that a deluge of coal from the United States will, in the end, cause Asia to use more coal. Countries like China will have less incentive to develop alternatives or become more efficient. And that, in turn, will mean more heat-trapping greenhouse gases in the atmosphere than there otherwise would be. To put this in perspective, 150 million tons of coal produces about as much carbon dioxide as 60 million cars.

That’s why many environmentalists are looking for ways to, as Roberts puts it, “Keep the damned coal in the ground.” Blocking U.S. export terminals in the Pacific Northwest is one such strategy. Of course, coal-mining firms like Arch and Alpha, now struggling to keep their stock prices aloft, aren’t likely to sit idly by while this happens.