By Mark Sumner

February 17, 2018 - For two decades, coal companies with operations in the Powder River Basin of Wyoming and Montana have been looking for a way to ship their coal across the Pacific. There are existing ports that could handle some coal, but nothing that could handle the millions of tons that the companies hope to ship to steam plants across Asia. Volume was an important factor, because Powder River coal is relatively low-BTU low-price coal. Making a new port designed to handle coal worth it means making something that can handle, at least, tens of millions of tons per year. But that sheer scale—a new port, tens of millions of tons of coal being shipped through by rail, handling of that coal on the ground, etc.—has led coastal states to turn down every proposal. In many cases, these projects have been strongly opposed not just by activists, but by local residents who don’t want to turn their town into the gateway for Wyoming coal. 

But at the other end if the rail line is Wyoming, a state that’s structured their finances around the fees that come in from fossil fuels. With hundreds of millions of tons of coal rolling out of the Powder River Basin, and a hefty tax on every ton, Wyoming residents have enjoyed top flight schools and facilities, while having no state income tax. The state has even socked away billions in savings. But the rise of cheap natural gas from fracking, and the rapidly falling prices for solar and wind has resulted in a sharp decline in demand for steam coal in the United States. That’s left Wyoming in a pickle. 

What to do about a looming, $684 million budget deficit will be the top priority as Wyoming lawmakers begin their annual legislative session Monday, but major changes to taxes or spending don't appear imminent.

Instead, tax-phobic Wyoming residents are facing some severe spending cuts. But rather than face the idea of implementing new taxes or getting by with less, Wyoming legislators have another idea.

A Republican lawmaker wants Wyoming to sue Washington State for denying a coal port that could carry Powder River Basin coal overseas – and set aside a quarter of a million dollars to do it. 

In a year with a massive deficit—especially for a state with fewer than 600,000 residents—a Republican legislator wants to set aside a quarter of a million dollars to mount a legal attack on another state. And the reason for that attack is because Washington residents don’t want millions of tons of Wyoming coal shipped through, and stored in, their state.

The bill argues that Washington has damaged the economic interests of Wyoming by blocking the export potential of Powder River Basin coal.

The target of the Wyoming legislators is a market that may seem unexpected.

Asian demand for coal is expected to grow substantially over the next 30 years, with Japan alone currently planning dozens of coal-fired plants, [a spokesman for Cloud Peak Energy] said, citing forecasts from the International Energy Agency.

On the surface, that statement is completely true. Despite its continued support of the Paris agreement, Japan is planning as many as 45 new coal plants, joining 49 plants already in operation.  These “high energy, low emissions” HELE plants are far cleaner than US plants, and Japanese power companies are counting on the fact that Japan hasn’t gotten around to putting a price on carbon emissions, and the post-Fukushima scramble to drop remaining nuclear plants, to keep coal palatable. The lack of cheap natural gas reserves on the Japanese islands, makes Japan one of the few places remaining where coal plants are economically competitive. And with 95 percent of Japan’s coal being imported, it may seem that Wyoming legislators have found a coal paradise.

But there’s just one problem. The great majority of those new HELE plants are designed to burn high BTU bituminous coal which Wyoming … does not produce. However, Australia does produce this grade of coal, and so does Indonesia—which already sells coal to Japan at a price below that of coal originating in the US.

If Wyoming operators could force Washington to allow construction of a port of sufficient size, and if US companies could work with Japan to calibrate HELE plants for lower BTU subbituminous coal, and if US operators could land contracts of sufficient size, they might be able to land coal in Japan at a lower cost than existing sources. They may get some assistance in the next few years, as Indonesia’s remaining reserves of bituminous coal run short and they’re also left with nothing but subbituminous coal on offer. On the other hand, they’ll also be entering a market where export prices have varied greatly over the last few years, putting a severe squeeze on existing players and making contracts highly competitive.

That puts a whole lot of ifs between Wyoming and dollars. And makes it a very long way to justify setting aside money to sue another state. 

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