As U.S. Cleans Its Energy Mix, It Ships Coal Problems Abroad

U.S. coal exports hit a new record in 2012. The trend undercuts U.S. progress in cutting greenhouse gas emissions, as more carbon-intensive fuel is burned overseas.

The port of Norfolk, Virginia, seen here in 1970, is the largest U.S. facility for exporting coal. It saw a surge of activity last year as U.S. coal exports increased 17 percent to set a new record.

Ready for some good news about the environment? Emissions of carbon dioxide in the United States are declining. But don't celebrate just yet. A major side effect of that cleaner air in the U.S. has been the further darkening of skies over Europe and Asia.

The United States essentially is exporting a share of its greenhouse gas emissions in the form of coal, data show. If the trend continues, the dramatic changes in energy use in the United States—in particular, the switch from coal to newly abundant natural gas for generating electricity—will have only a modest impact on global warming, observers warn. The Earth's atmosphere will continue to absorb heat-trapping CO2, with a similar contribution from U.S. coal. It will simply be burned overseas instead of at home.

"Switching from coal to gas only saves carbon if the coal stays in the ground," said John Broderick, lead author of a study on the issue by the Tyndall Center for Climate Change Research at England's Manchester University. (Related Quiz: "What You Don't Know About Electricity")

The U.S. Energy Information Administration (EIA) released data this week showing that United States coal exports hit a record 126 million short tons in 2012, a 17 percent increase over the previous year. Overseas shipments surpassed the previous high mark set in 1981 by 12 percent. The United States clearly is using less coal: Domestic consumption fell by about 114 million tons, or 11 percent, largely due to a decline in the use of coal for electricity. But U.S. coal production fell just 7 percent. The United States, with the world's largest coal reserves, continued to churn out the most carbon-intensive fuel, producing 1 billion tons of coal from its mines in 2012.

Emissions Sink

The EIA estimates that due largely to the drop in coal-fired electricity, U.S. carbon emissions from burning fossil fuel declined 3.4 percent in 2012. If the numbers hold up, it will extend the downward trend that the U.S. Environmental Protection Agency (EPA) outlined last month in its annual greenhouse gas inventory, which found greenhouse gas emissions in 2011 had fallen 8 percent from their 2007 peak to 6,703 million metric tons of CO2 equivalent (a number that includes sources other than energy, like methane emissions from agriculture). In fact, if you don't count the recession year of 2009, U.S. emissions in 2011 dropped to their lowest level since 1995.

President Barack Obama counted the trend among his environmental accomplishments in his State of the Union address last month: "Over the last four years, our emissions of the dangerous carbon pollution that threatens our planet have actually fallen."

The reason is clear: Coal, which in 2005 generated 50 percent of U.S. electricity, saw its share erode to 37.4 percent in 2012, according to EIA's new short-term energy outlook. An increase in U.S. renewable energy certainly played a role; renewables climbed in those seven years from 8.7 percent to 13 percent of the energy mix, about half of it hydropower. But the big gain came from natural gas, which climbed from 19 percent to 30.4 percent of U.S. electricity during that time frame, primarily because of abundant supply and low prices made possible by hydraulic fracturing, or fracking. (Related: "Natural Gas Stirs Hope and Fear in Pennsylvania" and interactive, "Breaking Fuel From the Rock")

The trend appears on track to continue, with U.S. coal-fired plants being retired at a record pace.

But U.S. coal producers haven't been standing still as their domestic market has evaporated. They've been shipping their fuel to energy-hungry markets overseas, from the ports of Norfolk, Baltimore, and New Orleans. Although demand is growing rapidly in Asia—U.S. coal exports to China were on track to double last year—Europe was the biggest customer, importing more U.S. coal last year than all other countries combined. The Netherlands, with Europe's largest port, Rotterdam, accepted the most shipments, on pace for a 24 jump in U.S. coal imports in 2012. The United Kingdom, the second largest customer, saw its U.S. coal imports jump more than 70 percent. (Related: "Natural Gas A Weak Weapon Against Climate Change, Study Says")

The hike in European coal consumption would appear to run counter to big government initiatives across the Continent to cut CO2 emissions. But in the European Union, where fracking has made only its initial forays and natural gas is still expensive, American coal is, well, dirt cheap. (Related: "U.K. Dash for Gas a Test for Global Fracking")

European utilities are now finding that generating power from coal is a profitable gambit. In the power industry, the profit margin for generating electricity from coal is called the "clean dark spread"; at the end of December in Great Britain, it was going for about $39 per megawatt-hour, according to Argus. By contrast, the profit margin for gas-fired plants—the "clean spark spread"—was about $3. Tomas Wyns, director of the Center for Clean Air Policy-Europe, a nonprofit organization in Brussels, Belgium, said those kinds of spreads are typical across Europe right now.

The EU has a cap-and-trade carbon market, the $148 billion, eight-year-old Emissions Trading System (ETS). But it's in the doldrums because of a huge oversupply of permits. That's caused the price of carbon to fall to about 4 euros ($5.23). A plan called "backloading" that would temporarily extract allowances from the market to shore up the price has faltered so far in the European Parliament. "A better carbon price could make a difference" and even out the coal and gas spreads, Wyns said. He estimates a price of between 20 and 40 euros would do the trick. "But a structural change to the Emissions Trading System is not something that will happen very quickly. A solution is years off."

The Tyndall Center study estimates that the burning of all that exported coal could erase fully half the gains the United States has made in reducing carbon emissions. For huge reserves of shale gas to help cut CO2 emissions, "displaced fuels must be reduced globally and remain suppressed indefinitely," the report said. (Related Quiz: "What You Don't Know About Natural Gas")

Future Emissions

It is not clear that the surge in U.S. coal exports will continue. One reason for the uptick in coal-fired generation in Europe has been the looming deadline for the EU's Large Combustion Plant Directive, which will require older coal plants to meet lower emission levels by the end of 2015 or be mothballed. Before that phaseout begins, Wyns says, "there is a bit of a binge going on."

Also, economic factors are at work. Tyndall's Broderick said American coal companies have been essentially selling surplus fuel overseas at low profit margins, so there is a likelihood that U.S. coal production will decrease further. The U.S. government forecasters at EIA expect that U.S. coal exports will fall back to about 110 million tons per year over the next two years, due to economic weakness in Europe, falling international prices, and competition from other coal-exporting countries. The Paris-based International Energy Agency (IEA) calls Europe's "coal renaissance" a temporary phenomenon; it forecasts an increasing use of renewables, shuttering of coal plants, and a better balance between gas and coal prices in the coming years.

But IEA does not expect that the global appetite for coal will slacken appreciably. The agency projects that, by 2017, coal will rival oil as the world's primary energy source, mainly because of skyrocketing demand in Asia. (Related: "Pictures: A Rare Look Inside China's Energy Machine")

U.S. coal producers have made clear that they aim to tap into that growing market.

Currently, U.S. exports to Asia are somewhat constrained because there is little port capacity for big coal ships on the U.S. West Coast, and because metallurgical coal, the high-heat content rock that is used for steelmaking, is mined exclusively on the U.S. East Coast. Nevertheless, demand for U.S. "met" coal is so great in Asia that the shipments make a round-the-world journey from Appalachia. They are sent by train to the port of Baltimore, where they steam to sea through the Chesapeake Bay, then south across the Atlantic Ocean and around Africa's Cape of Good Hope to reach Asian ports.

Whether U.S. exports to Asia expand will depend largely on the fate of controversial proposals to expand port capacity in Bellingham and Longview, Washington, and Corpus Christi, Texas. (Related: "Seeking a Pacific Northwest Gateway for U.S. Coal" ) Those new ports would allow easier transport of the abundant coal of the Powder River Basin of Wyoming and Montana, which is especially well suited for generating electricity. Powder River Basin coal is prized because it is low in sulfur and can cut acid rain emissions, but as with all coal, carbon dioxide emissions remain a major problem.

John Eaves, chief executive officer of St. Louis, Missouri-based Arch Coal, which saw the bulk of its exports last year go to South Korea, told investors last month that the company would be proactive in working to gain greater port capacity. Despite the low price currently fetched for coal overseas, Eaves said the company expects the international market to improve even as domestic demand for coal recedes. "As we look to the U.S. over the next three to five years, let's face it, demand's going to be pretty flat," he said. "We see exports as a long-term development opportunity." (Related Interactive: "World Electricity Mix")

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.