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January 15, 2013

Reduce greenhouse gas by exporting coal? Yes, says Stanford economist

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

By Mark Golden

Freight cars carry tons of coal through Union Pacific's Bailey Railroad Yards, North Platte, Neb. If U.S. coal companies boost sales to Asia, global greenhouse gas emissions will fall, says Stanford economist Frank Wolak. (Photo: Spirit of America / Shutterstock)

If Pacific Coast states construct sufficient coal export facilities, the United States is likely to sell heaps of coal to Asia in the years ahead, but that should cut – not raise – global emissions of greenhouse gases, according to Frank Wolak, professor of economics at Stanford University.

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

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

That switch has lowered U.S. 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 U.S. utility executives, the economics are making being an environmentalist very attractive," said 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," said 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."

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

For America, a double win

The outcome of an economic boost and environmental improvement should last for a long time, Wolak said while presenting his research at a recent Stanford conference on the future of fossil fuels. "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 U.S. rail transportation network will also create many domestic jobs, and the decreased domestic use of coal will reduce U.S. 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 U.S. environmental organizations think exporting more U.S. coal will increase global greenhouse gas emissions," Cavanagh said.

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

"Not long ago the U.S. 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 insisted, China will learn that its cheapest energy resource, especially once the costs of carbon dioxide get included, is improving energy efficiency.

Wolak countered that the global coal market is extremely competitive, so that any price increase brought about by fewer U.S. 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 said.

Retired Stanford physicist and Nobel Prize winner Burt Richter, who attended the conference, said 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 conceded 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," said 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."

The Program on Energy and Sustainable Development is a part the Freeman Spogli Institute for International Studies at Stanford University.

Mark Golden works in communications at the Precourt Energy Efficiency Center at Stanford University.

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Contact

Frank Wolak, Program for Energy and Sustainable Development: (650) 723-3944, wolak@stanford.edu

Mark Golden, Precourt Institute for Energy: (650) 724-1629, mark.golden@stanford.edu

Dan Stober, Stanford News Service: (650) 721-6965, dstober@stanford.edu

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