The Harder They Come: a rough guide to coal export’s effect on climate

Coal export proponents like to argue that, climate-wise, it doesn’t matter:  Asia will burn the same amount of coal regardless of whether we ship it from the Northwest.  This argument is weak because it: a) defies basic economics – see here; b) ignores the x-factor:  economic “lock-in” to dangerous climate disruption – see here; and c) is morally dubious – see here.  So we know coal export is bad for the climate.  Check out Eric de Place’s social math for scale.

It’s true, however, that the Powder River Basin isn’t the only potential source of coal supply for Asia.  Estimating the net emission impact requires some elaborate economics (forthcoming). [i]  But this graph is a rough, directional guide:

Let me explain.

It all comes down to the difference between the cost of producing and transporting Powder River Basin coal and the value of that coal in Asian markets.  That difference appears to be huge.

PRB coal isn’t dirt cheap.  It’s cheaper (than, say, top soil or gravel).  Most of it lies under public land, and the federal government basically gives it away.  Strip-mining is the very definition of quick and dirty – and, yes, super-cheap.  The mine-mouth cost of “producing” PRB coal is in the range of 10-15 bucks a ton.

Transporting it by rail and mega-ship to Asia is much more costly than snatching it from federal land, but there’s still plenty of margin.  Rail costs run about a penny a ton per mile, so that’s maybe another $20 a ton to get it to port.  Throw in say  $15 for ocean shipping, tack on a value-added tax and port fees in China, and we’re looking at maybe $70 per ton delivered cost.

The benchmark thermal coal price in China in January was $115 per ton.  So PRB coal suppliers could significantly undercut the market, and still make a bundle.  This also explains why Asia is “just drooling” for this coal, and why, in turn, Big Coal is drooling to get it there.  Saliva speaks volumes.

The fact that they could sell coal so much cheaper also means that other suppliers would have to lower their prices to remain competitive.  And that would mean even greater increases in emissions, and more irreversible commitments to coal infrastructure.

So, both the potential for profits and the potential for net emission increases depend on the same factor – the amount by which the value of the coal in Asia exceeds the cost of getting it there.  In other words, the coal export business succeeds roughly in direct proportion to how much it disrupts the climate.

That means there is a reliable if not precise way to gauge how big the net emission impacts of coal export would be:  by observing how desperately the coal industry tries to make it happen.  One more walk through the logic:

The harder the coal industry tries to mow down the opposition to coal export, the more we can infer that enormous profits are at stake.  And the size of the prospective profits is directly related to how competitive their coal is in Asia, which is directly related to how cheaply they can deliver it, which is directly related to how much would be burned.

Yup, how bad it would be for the climate is an indirect function of how much the coal industry wants it.  Judging by the money they are throwing at the early rounds of this battle, it’d be real bad.  And, they have warned, we ain’t seen nothin’ yet.

There is, of course, a corollary conclusion about how we should respond:

We will know that coal export would be okay from a climate perspective when they give up and stop trying to make it happen. 

[i] To calculate the net emission impact you have to assess how big the relevant markets are; how much cheaper this coal is than other available supplies in those markets; and what the “elasticity” of coal consumption is – that is, how much it changes in response to price.  We’re working on it; stay tuned.

One Response to The Harder They Come: a rough guide to coal export’s effect on climate

  1. Reblogged this on .

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