Efforts to Export PRB Coal to Asia Take a Detour Through the Courts

EFFORTS TO EXPORT PRB COAL TO ASIA Detour Through the Courts

By John Simpson, Editor, Coal Transporter

While U.S. and European thermal coal consumption has softened in recent years, the global coal trade has continued to grow. According to the International Energy Association, worldwide coal exports have more than doubled since 2000, with global trade in coal consistently growing faster than global consumption. 1 And that trend is likely to continue, with the Energy Information Administration forecasting an average growth in the global coal trade of 1.4 percent annually through 2050. 2

The lion’s share of that growth will come from exports to Asian economies—both mature and developing—as they increase their reliance on coal-fueled electricity generation. Since 2009, the top five coal-importing countries have all been located in South or Southeast Asia: Japan, India, China, South Korea, and Taiwan. 3 According to IHS Markit, Asia’s share of total global coal demand will increase from its approximately 77% share today to 81% by 2030. 4

All of which would be good news to western U.S. coal producers—particularly those in the Powder River Basin that mine low-sulfur coal attractive to Asian power plant operators—were it not for the lack of coal export terminal capacity on the West Coast. Currently, there is only one such facility that inland coal producers can readily access—Westshore Terminals, in Delta, British Columbia, which is already Canada's busiest coal export terminal. 5 Efforts to remedy that situation by building deep-water export facilities with access to rail—in Longview, Washington, and Oakland, California—point up the difficulties in building fossil fuel infrastructure in municipalities more politically in tune with renewable energy interests.

Millennium Bulk Terminal In 2011, Millennium Bulk Terminals LLC purchased the site of an abandoned aluminum smelter in Longview, Washington, with plans to invest an estimated $600 million to upgrade the existing

Photo: CC BY 3.0/Peabody Energy

import/export bulk facility and build a coal receiving, storage, and shipping terminal. Upon completion, the project would allow for up to 44 million metric tons of coal 6 per year to be transported by rail from the Powder River Basin and Uinta Basin to load on ships at the facility for export to Asia.

An economic analysis by Berk Consulting estimated that the revitalization of the site would support 2,650 temporary jobs, $70 million in wages, and $232 million in direct output during the construction phase. At buildout, site operations would produce 135 jobs, $16 million in wages, and $49 million in direct output annually. Over the projected 30-year life of the facility, activities would generate an estimated $146 million in tax revenues. 7

However, in its environmental assessment of the proposed terminal, the Washington Department of Ecology (WDE) expanded the scope of its review beyond the project area—beyond state and international borders, in fact—to include potential environmental impacts relating to both the upstream rail transportation of the coal and the downstream use of the coal for electricity generation in Asia. 8 WDE’s environmental impact statement ultimately mandated the purchase of carbon offsets to mitigate 50 percent of the greenhouse gas emissions related to coal shipments to and from the proposed terminal. 9 WDE further denied a needed water-quality permit “with prejudice,” effectively scuttling project developers’ ability to revise their original proposal to meet regulatory requirements. 10

In January 2018, Millennium’s parent company, Lighthouse Resources Inc., sued Washington state officials, including Governor Jay Inslee and the WDE director, in federal court, asserting that their actions violated the U.S. Constitution’s Commerce and Supremacy clauses. 11 While the company has appealed several subsequent decisions by that court to the Ninth Circuit, their cause has since been taken up by the states of Wyoming and Montana, which earlier this year filed a joint motion before the U.S. Supreme Court requesting that it take up “original jurisdiction” over the matter. 12

"This case implicates an important purpose of the Commerce Clause: prohibiting coastal states from blocking landlocked states from accessing ports based on the coastal states' economic protectionism, political machinations, and extraterritorial environmental objectives," the states’ attorneys general wrote in their filing. “When Washington denied ‘with prejudice’ a Section 401 Water Quality permit for the Millennium Bulk Terminal in Cowlitz County, it did so to protect its own agricultural interests and because it objected, as a matter of political posturing, to the commodity that Wyoming and Montana sought to export: coal,” they added. 13 Both the National Mining Association and the National Association of Manufacturers have weighed in on the case, filing an amicus brief that notes, in part: “By all appearances, Washington has denied [Clean Water Act] certification for construction of the terminal, not to protect waters of the United States or to pursue any other legitimate local interests, but because state officials disagree with the federal government’s foreign trade policy. The Constitution allocates exclusive authority over international trade to the federal government. And it does so for good reason: international trade and foreign policy are inherently matters of national concern.” 14 While the Supreme Court has yet to decide whether it will take up the case, the U.S. Environmental Protection Agency in the meantime has issued a new rule limiting states’ (and Native American tribes’) ability to block federally permitted projects based on state water standards. Clarifying its view on Section 401 of the Clean Water Act, EPA in a June 1, 2020, ruling stated that the

“scope of a State’s or Tribe’s Section 401 review or action is not unbounded and must be limited to considerations of water quality.” The agency also set a timeline of one year within which authorities must act on a certification request. 15

“Today, we are following through on President Trump’s Executive Order to curb abuses of the Clean Water Act that have held our nation’s energy infrastructure projects hostage, and to put in place clear guidelines that finally give these projects a path forward,” EPA Administrator Andrew Wheeler commented upon announcing the final rule. 16 The rule, which will take effect September 11, 2020, is likely to engender further litigation as states seek to regain from the federal government the authority under the Clean Water Act to impose conditions on energy projects based on state law.

Oakland Bulk and Oversized Terminal

The Oakland Bulk and Oversized Terminal (OBOT) is a planned multicommodity export facility located on the site of a decommissioned U.S. Army base at the port of Oakland. 17 The project, approved by the Oakland City Council in 2012, is designed to take advantage of the location’s proximity to existing rail infrastructure and the city’s deep-water port.

According to Insight Terminal Solutions (ITS), which holds the sublease to operate the proposed terminal, OBOT will be designed to handle an annual throughput of over 10 million metric tons of bulk agricultural and mineral commodities and receive up to three unit trains of 114 rail cars per day. ITS says OBOT will be able to accommodate Handymax (30,000-ton) to Capesize (130,000-ton) vessels for shipment of these commodities. It anticipates investing over $250 million for the proposed 66-year life of the project that will generate a construction payroll of $76 million and annual and induced payrolls of $120 million—helping bring needed economic activity to an area of Oakland distressed since the Army base’s closure in 1999. 18

When news surfaced in 2015 that four Utah counties—Carbon, Emery, Sanpete, and Sevier—were prepared to invest in the construction of the terminal in return for the right to ship coal to Asia-Pacific markets, activists mobilized to interrupt the plan. “The Oakland City Council has the authority to ban coal exports if they have evidence that coal exports are ‘substantially dangerous to health and safety’ for neighboring communities,” a Sierra Club fact sheet asserted at the time. 19 After a year-long pressure campaign, Oakland’s City Council voted to ban coal and petroleum coke storage and handling in the city. 20

The project’s developer, OBOT CEO Phil Tagami, in response sued the city in federal court, claiming that the council’s action violated the terms of his 2013 agreement with the city to develop the project. 21 In May 2018, the U.S. Court for the Northern District of California struck down the city’s ban—ruling that the city had breached its contract with OBOT and finding that there was not sufficient evidence that coal-related operations would pose a substantial threat to the community’s health or safety. 22 Earlier this year, the

Photo: CC BY 4.0/Азат Сибишов

Ninth Circuit Court of Appeals upheld the lower court’s ruling. 23

As in the case of the Millennium Bulk Terminal, the likeliest outcome of the most recent legal activity is further litigation. The Sierra Club, for one, reportedly plans to appeal the Ninth Circuit Court’s decision. 24 In the meantime, the aforementioned four Utah counties have restated their commitment to invest in OBOT, affirming in signed court documents supporting ITS’ reorganization plan their intention to draw on up to $53 million in Utah state funds to advance construction of the terminal. 25 Authorization to do so was approved by the Utah state legislature and signed into law in 2016. 26

John Simpson is editor of Coal Transporter.

Footnotes 1 International Energy Agency. “Coal Information 2019.” https://www.iea.org/reports/coal-information-2019. Retrieved on July 21, 2020. 2 Energy Information Administration. International Energy Outlook 2019. p 110. 3 International Energy Agency. “Coal Information 2019.” https://www.iea.org/reports/coal-information-2019. Retrieved on July 21, 2020. 4 “Coal’s Death Greatly Exaggerated as Fuel Lives Large in Asia.” Bloomberg Law. June 10, 2020. 5 University of Pennsylvania. Wharton Public Policy Initiative. “United States Coal Export Facilities.” October 8, 2018. 6 Berk Consulting. “Economic & Fiscal Impact Assessment of Millennium Bulk Terminals.” April 12, 2012. 7 Ibid. 8 Lammi, Glenn G. “Commerce-Clause Challenge Over Washington Coal-Export Terminal Overcomes First Hurdle.” Forbes. June 19, 2018. 9 Lammi, Glenn G. “Washington State Officials Usurp Federal Authority with Crusade to Block Export Terminal.” Forbes. March 19, 2018. 10 Ibid. 11 Lammi, Glenn G. “Commerce-Clause Challenge Over Washington Coal-Export Terminal Overcomes First Hurdle.” Forbes. June 19, 2018. 12 McKim, Cooper. "‘We Believe This Is Our Sole Remedy’: WY, MT Look to Supreme Court over Coal Export Terminal.” Wyoming Public Media. January 21, 2020. 13 State of Montana and State of Wyoming, Plaintiffs, v. State of Washington, Defendant. Motion for Leave to File Bill of Complaint, Bill of Complaint, and Brief in Support. January 21, 2020. p 1. 14 Montana and Wyoming, Plaintiffs, v. Washington, Defendant. “Brief of the National Mining Association and the National Association of Manufacturers as Amici Curiae in Support of Plaintiffs’ Motion for Leave to File a Bill of Complaint.” March 20, 2020. p 1. 15 U.S. Environmental Protection Agency. “Clean Water Act Section 401 Certification Rule.” Final Rule. June 1, 2020. 16 U.S. Environmental Protection Agency. “EPA Issues Final Rule that Helps Ensure U.S. Energy Security and Limits Misuse of the Clean Water Act.” News Release. June 1, 2020. 17 Oakland Bulk and Oversized Terminal. “OBOT Vision.” http://obotjv.com/about-us. Retrieved on July 21, 2020. 18 Insight Terminal Solutions. “Frequently Asked Questions.” http://insightterminals.com/faq. Retrieved on July 21, 2020. 19 Sierra Club – San Francisco Bay. “Oakland Coal Exports.” Fact Sheet. p 2. 20 Sierra Club. “Oakland Votes to Ban Coal and Petcoke Handling and Storage.” July 22, 2016. 21 Christophi, Helen. “Oakland Faces Lawsuit over Obstruction of Coal Shipping.” Courthouse News Service. December 4, 2018. 22 Dinzeo, Maria. “Ninth Circuit Overturns Oakland Coal Ban.” Courthouse News Service. May 26, 2020. 23 Ibid. 24 Debolt, David. “Oakland Loses Appeal on Coal Ban.” The Mercury News. May 26, 2020. 25 Maffly, Brian. “Utah Coal Counties Pledge $20M in State Money to Help Get Oakland Port Back on Track.” The Salt Lake Tribune. July 5, 2020. 26 “Utah Governor SignsBill Funding California Coal Port.” Bloomberg Law. March 28, 2016.