Coal Exports: The End Game Unfolds

Financial turmoil! Political opposition! Environmental intrigue! By any measure it’s been a momentous week for Northwest coal exports. Here’s the rundown:

A political game-changer in British Columbia

In the midst of a tight election battle, BC Premier Christy Clark radically changed the debate over coal exports in the province last Wednesday by asking Canada’s Prime Minister, Justin Trudeau, to ban coal exports to overseas power plants. Media reports initially described the move simply as retaliation against the Trump administration for new import duties on Canadian lumber. The bulk of the thermal coal exported from the province originates from US mines, and Trump has long portrayed himself as a friend to the US coal industry—which made US coal exports a ripe target for political gamesmanship.

But Clark’s move gained more heft once she clarified that the ban on coal exports wouldn’t just affect US companies, but would cover coal produced in Canada as well. Just as importantly, she described her opposition to coal exports not merely as a counter-punch in an international trade dispute, but as a moral imperative:

Thermal coal is the most carbon dioxide-intensive form of conventional fossil fuel energy production…. Banning its transport through Canada would be consistent with the efforts of both British Columbia and Canada to reduce global greenhouse gas emissions.

Some critics have derided her call for a coal export ban as little more than an eleventh-hour electioneering stunt, given that the announcement came less than two weeks before the provincial vote. Still, the Premier has now made some bold commitments that she and her party will have a hard time backing away from. And she’s even doubled down on her threats, saying that if the federal government doesn’t agree to ban exports, she’ll work to put a prohibitive regulatory fee on all thermal coal exported from the province. That fee—amounting to about Can$70 per metric ton, or US$50—would make it financial suicide for US coal exporters to try to ship their wares to Asia. As structured, the fee would effectively extend BC’s carbon tax both to mining and transportation emissions in the US and to the combustion of coal in Asia, an unprecedented move that could have far-reaching implications.

This is something of “Nixon goes to China” moment for coal exports. Christy Clark is the leader of the center-right, self-described “free enterprise” party in the British Columbia political spectrum. She and her party have taken heat from environmentalists and First Nations over a number of troubling fossil fuel projects. But on coal she’s now taken a position that’s most closely aligned with the province’s environmental community. The leader of the BC’s Green Party, for example, has echoed Clark’s call for a coal export ban. As Kevin Washbrook from Voters Taking Action on Climate Change argues, Clark’s broadside against coal represented a political game-changer, fundamentally realigning the province’s debate over coal exports and turning up the heat on the next BC premier, whoever that turns out to be.

More red ink for Cloud Peak

Cloud Peak Energy—one of the best positioned US coal companies to ship thermal coal to Asia, and also one of the biggest potential losers from the BC Premier’s attack on coal exports—announced yet another disappointing quarter for its export division. The company halted its exports in early 2016, but resumed them last fall amid a spike in Pacific Rim coal prices, predicting that they’d earn at least $20 million in 2017 from sales to Asia. But in its first full quarter, the company announced that it had actually lost $7 million shipping just half a million tons of coal to overseas customers.

Company executives blamed the shortfall on bad weather that impeded rail deliveries, which forced Cloud Peak to pay contractual penalties for coal that was never shipped. Even so, it was yet another in a long string of losses for the company’s export arm—and a clear demonstration of the financial risks that US coal exporters face in the uncompromising Pacific Rim market.

Coal terminal review uncovers irrevocable environmental harms

“Unavoidable and Significant Adverse Environmental Impacts.” That’s how the Final Environmental Impact Statement for the Millennium Bulk Terminals project, proposed for Longview, Washington, described the effects of the proposed coal export facility. For nine environmental resource areas—social and community resources; cultural resources; tribal resources; rail transportation; rail safety; vehicle transportation; vessel transportation; noise and vibration; and air quality—the environmental review found that the project would create harms that could not be fully mitigated. And for some resource areas, including climate change, the environmental review found that the project would create effects that could only be mitigated at substantial cost.

The environmental review doesn’t itself carry any direct regulatory consequences. Yet it undoubtedly will inform the conditions that could be placed on more than 20 permits that the project must receive from county, state, and federal agencies. An environmental review that could lead to outright denials of some of these key permits—or, alternatively, could weigh down the project with so many delays and expensive conditions that it becomes even more of a financial dead end. Unsurprisingly, the CEO of the project portrayed the release of the FEIS a “strong step forward,” but if so it’s probably a step towards a looming abyss.