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Sell US Coal to China and Watch Carbon Emissions Fall

By Futurity | Wed, 16 January 2013 22:49 | 2

Exporting coal from the western US to China could actually lower overall greenhouse gas emissions, an energy economist argues.

Western US coal companies looking to expand sales to China will likely succeed, according to Frank Wolak, professor of economics at Stanford University. But, due to energy market dynamics in the United States, those coal exports are likely to reduce global emissions of greenhouse gases.

Over the past several years, US natural gas prices have plummeted while coal prices have risen. That, combined with stricter environmental rules on coal burning, has caused US electric utilities to use more natural gas-fired generators and fewer coal-fired power plants to produce electricity.

Coal’s share of US electricity production has fallen from more than half 10 years ago to just a third currently.

That switch has lowered US emissions of greenhouse gases, primarily carbon dioxide. For every kilowatt-hour of electricity generated, burning coal emits more than double the carbon dioxide that natural gas does.

“For US utility executives, the economics are making being an environmentalist very attractive,” says Wolak, the director of Stanford’s Program on Energy and Sustainable Development.

Appalachian coal companies increasingly have been selling their output to Europe, where natural gas remains expensive. America’s cheaply mined and low-priced coal, though, is in Wyoming and Montana. According to Wolak’s research, if West Coast coal export terminals are built, it is likely that coal companies will ship massive amounts of the stuff to Asia. China has built so many coal-fired power plants to fuel its economic growth that it switched from being an exporter of coal to an importer in 2009. Since then, its imports have skyrocketed.

“Perhaps counter-intuitively, the United States selling coal to China, and Asia generally, likely will reduce greenhouse gas emissions globally,” says Wolak.

“The assumption here is that China will burn all the coal necessary to keep the lights on, the factories running, and electricity rates low. Different from the United States and Europe, China does not have significant natural gas-fired generation units and its electricity demand continues to grow rapidly, so it must burn the coal to meet this demand growth. It’s just a question of where it comes from.”

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To the degree that this coal comes from the United States, US coal prices will rise. This will cause US utilities to switch even more of their electricity production from coal to gas, further reducing US emissions of carbon dioxide.

Back-and-forth debate

The outcome of an economic boost and environmental improvement should last for a long time, Wolak says while presenting his research at “The New US Role in Global Fossil Fuel Markets” conference held at Stanford on December 21. Video of his presentation is available.

“This demand for coal in China appears to be long lived. The coal-fired power plants are expensive to build and are designed to last a long time, at least 30 years.”

If the United States does not build West Coast ports to ship western coal to Asia, Canada will likely do so, according to the energy economist. If West Coast ports do not get built, then exports would likely go through Gulf of Mexico ports. Even with shipping costs, the low-priced coal should be able to beat the price of Asia’s current supplies.

The additional mining activity and use of the US rail transportation network will also create many domestic jobs, and the decreased domestic use of coal will reduce US sulfur and particulates emissions.

For two years, environmentalists have opposed the building of coal export terminals in Washington and Oregon. Speaking at the same conference, the Natural Resources Defense Council’s Ralph Cavanagh strongly disagreed with Wolak’s conclusions. “The NRDC and other US environmental organizations think exporting more US coal will increase global greenhouse gas emissions,” Cavanagh says.

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“Frank assumes that demand for coal in China is completely inelastic, an assumption widely held, but that would make China totally unique,” says Cavanagh, co-director of NRDC’s energy program and the organization’s senior attorney.

“Not long ago the US demand for electricity was seen as totally inelastic, rising in lock step with gross domestic production, but that is no longer true. Electricity use has been growing at about half the rate of GDP for a couple decades.”

Instead, Cavanagh insists, China will learn that its cheapest energy resource, especially once the costs of carbon dioxide get included, is improving energy efficiency.

Wolak counters that the global coal market is extremely competitive, so that any price increase brought about by fewer US exports is likely to be extremely small. Such a small price increase is unlikely to cause China to alter its demand for coal imports, he says.

Another option

Retired Stanford physicist and Nobel Prize winner Burt Richter, who attended the conference, says that the preferred outcome would be for the United States to export to China the hydraulic fracturing technology that has made natural gas here so abundant and inexpensive.

However, Richter concedes that business practices in China may prevent such technology exports, even though many observers estimate that China has larger shale gas reserves than the United States.

Other technological developments, like more efficient renewable energy, may change the outlook for the global coal market down the line. “My research is based on current technology,” says Wolak.

“I’m certainly hopeful that the technology will change. The big problem is that there is no price on carbon emissions outside of California, which significantly dulls the economic incentives to invest in research and development of low-carbon energy sources.”

By. Mark Golden

Leave a comment

  • John D on January 17 2013 said:
    The exporting of coal to China will reduce worldwide carbon emissions? You are really stretching here to make an optimistic point.
  • Jeremy on January 20 2013 said:
    Selling coal to China will reduce emissions? May I ask what type of logic is this? The sad aspect is it was presented as serious study by a Standford economist. One that obviously does not know the dynamicSo, what you are claiming is that because of that one piece of evidence that global warming has stalled? Do not climate scientists also utilize other evidence? Paleoclimatic records, which clearly show as greenhouse gas increases so do temperatures, historical records the Dr. Richard Muller team verified and shown that there is indeed a warming trend. Extreme record weather events as we have witness in the recent past. Physics and chemistry, like what has been shown by the absorbing CO2 has of the ocean waters and changing the ph. Seasonal and specie changes. Record Arctic, West Antarctica melt and majority of glacier retreating.
    s of climate change science or the situation the planet is facing at the moment. Emissions will have to approach near zero by the year 2060.
    May I ask this economist what infrastructure is being built to achieve that goal now?
    Perhaps that economist will take a course in capital budgeting.

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