Jan 16, 2013

BC’s Coal Future


While much of the attention this week is on the Enbridge Northern Gateway Pipeline hearings in Vancouver, another fossil fuel export issue has come into play with proposals to greatly expand coal exports from the Port of Metro Vancouver. Our colleagues, David Green (Economics, UBC) and Kevin Washbrook (Voters Taking Action of Climate Change) have guest blog post on this topic below.

BC’s Coal Future

David A. Green and Kevin Washbrook

Last May we were relieved to hear Premier Clark state that responsibility for climate change does not stop at our borders. She suggested that those who claim we only have to control global warming emissions generated inside our province are perpetuating a myth, and that this is wrong.

We couldn’t agree more, both with the argument that BC must take responsibility for exported emissions, and that this is a clear-cut issue of right and wrong. Given the urgent need to reduce global warming emissions world-wide in order to avoid runaway climate change, we have a moral obligation to take responsibility for our exported emissions. It is the right thing to do.

Of course, Premier Clark was making her point in an attempt to justify an increase in the export of fossil fuels out of BC, in the form of Liquified Natural Gas. However, her point is better applied to the argument that we need to decrease the export of US and Canadian coal out of BC.

Coal is the “dirtiest” fossil fuel – it produces the most global warming pollution of all fossil fuels when burned to make electricity, and virtually the same amount of pollution when used to make steel. BC is the biggest exporter of coal in Canada. When the emissions from all the coal exported from BC are added up, they are equal to the emissions we produce here at home.
Right now, more than 10 new coal mines are currently in some stage of planning in the province. The import and re-export of US coal has already grown considerably in recent years, and the provincial government has indicated that it would like to see a doubling of coal exports out of BC. The Vancouver Fraser Port Authority is currently considering two plans which, if approved, would make Metro Vancouver the biggest exporter of coal in North America.

Our current status as Canada’s largest coal exporter is bad enough. These expansion plans cannot be reconciled with our moral obligations.

Why are we in this bind?? Why is BC, with its stated “green goals,” intent on expanding its coal footprint? To paraphrase the Americans, “it’s the economy, stupid.” Resource development is at the heart of the economic plans of the both the BC and Federal governments. The market, so goes the argument, has sent a clear signal of demand for our coal and for the use of our ports to export US coal, and we should allow the mining sector to respond to those signals. Revenue, jobs – its all got to be good for BC, right?

Arguing this way makes it appear that our morals and our economic interests are at war. In fact, this is not the case. Markets are a powerful mechanism for allocating our natural, human and physical capital resources where they are needed. It does that through prices – when the price of something like coal goes up (because China is demanding it), that signals that there is value in shifting workers and physical capital toward producing and shipping coal. The problem is that markets signals are often far from perfect.

For coal , the price signals are problematic in a number of ways.

First and foremost, the current price of using coal doesn’t take account of the damage it does to the environment when it is used to make steel or electricity. Using coal without proper pricing of its ultimate costs is like running a furniture company by using wood from the factory building itself to make the furniture but acting as if there is no cost to doing so. The company will be able to charge a low price for the furniture and demand for its products will expand – generating growth in output and employment. But one day, when the factory falls down, the decision to avoid paying the true cost for the wood is going to seem awfully short-sighted.

On the other side of the ledger are the prices of the inputs. In a recent report, the CCPA argues that BC Hydro pricing heavily subsidizes the energy costs for new coal mines. This too means that the market is being distorted in a way that draws our labour and capital resources away from where they are truly most productive.

Just as importantly, the federal government’s policies on Temporary Foreign Workers (TFWs) act as a substantial subsidy to the coal mining industry. In a recent, high profile example, a Chinese company developing an underground mine sought to bring in a substantial number of Chinese miners. These workers reduce costs because of TFW rules which allow firms to pay up to 15% below the “going wage” in an occupation.

This form of subsidy means that one part of the promised benefit of developing coal — more jobs– isn’t really true. There is no reason why increased employment for temporary foreign workers should be counted as a benefit for British Columbia.

The industry claims that TFWs are necessary because the required skills aren’t available in Canada. What they really mean is that they will have to pay so much to either attract the workers who already exist, or to induce other workers to train for these jobs, that the venture would not be viable. But then the logic of the market says that there is no conflict between our ethics and our economics: if coal mines cannot be developed without under-pricing their true costs and subsidizing the labour and energy inputs then they are just dumb economic policy.

The counter-argument from industry [and government] is that energy and labour cost subsidization is needed to “jump start” the industry – to get in on the ground floor of China’s expansion – with the big benefits for BC to come in future years. Again, if the environmental impact of coal is not priced correctly, then this is a specious argument. In the long run, no one benefits if we destroy our climate for short term gain.

There are other important reasons why we need to get out of the business of exporting fossil fuels. As we move toward a low carbon future, encouraging workers to move into coal sector jobs is wrong. We have seen numerous examples of the winding down of resource towns in recent decades. Capital leaves quickly and easily, to be used in other productive ventures. But the closing down of towns where people have built communities and the difficulties faced by older workers whose skills are focused on mining are painful. To set up mining operations with their accompanying towns that we know we will need to shut down in the near future just to get short term jobs is both economically and morally short-sighted.

The BC Mining Association has indicated that nearly one-half of the BC mining labour force is set to retire over the next 10 years. While the BC Mining Association describes declining numbers in the labour force as a crisis, they are in fact an opportunity to wind down coal mining in BC in an orderly fashion while minimizing impacts on BC communities. Less than 1% of the BC labour force is employed in mining and only a fraction of that is in coal. With the upcoming retirements, the move out of coal is doable. It will involve all of us helping to pay for younger workers and communities invested in coal to adjust since we will all reap the environmental benefits but they bear the direct costs.

The bottom line is that our ethics and our economic interests are not truly in conflict, as many would have us believe. If we price the effects of coal and the inputs to its production correctly, economics as well as our ethics tell us that we shouldn’t be developing coal.

Instead, we should be developing a strategy for getting out of coal. This will involve pricing carbon impacts correctly, stopping the subsidization of energy inputs for coal mines, and stopping the TFW labour subsidy. It also involves developing skills training policies that help steer our young people toward jobs that will be both environmentally and truly economically sustainable.

Clear steps are available for BC and Canada:

First, we should ban, immediately, the import and re-export of US coal out of BC. This practice brings little benefit to the province and profits only a few. We need no part of it.

Second, we should place a moratorium on the development of new coal mines in BC. Given the recent announcement from the International Energy Association that two thirds of all fossil fuel resources must remain in the ground past 2050 if we are to avoid a climatic-disaster, we would be foolish to lock ourselves into long term economic decisions that put our planet in peril.

Third, we must plan for the orderly phase out of existing coal mines in BC, and a just transition for communities dependent on those operations.

Fourth, we should price carbon correctly by returning to orderly, pre-announced increases in the carbon tax. The carbon tax should be applied in full to the coal exported out of BC – both thermal coal imported from the US, and domestic metallurgical coal. Raising the cost of this key steel making input will help spur the search for alternatives to the use of coal in that process.

Fifth, we should develop skills training policies that help steer our young people toward jobs that will be both environmentally and truly economically sustainable. This and a just transition fund for coal mining communities are prime candidates as uses for future increases in carbon tax revenues.

BC is at a crossroads. Our government can continue to serve the interests of the fossil fuel industry, allow temporary foreign workers to run coal mines, and lock us into to a destructive dependency on continued coal extraction. Or, it can start the transition now, while we still have time, towards an economy and society that is more suited to the fragile world we find ourselves in.

Changing demographics have handed us a golden opportunity to gracefully take our leave of a dangerous resource industry that puts our future at risk. Let’s hope that the government we elect this coming May has the moral courage to take us down the right path.

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