STEVEN GLOBERMAN

KAISER PROFESSOR OF INTERNATIONAL BUSINESS

ANDDIRECTOR OF THE CENTER FOR

INTERNATIONAL BUSINESSWESTERN WASHINGTON UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

JUNE 2013

The Big Picture: Proposed Cherry Point and Longview

Coal Ports

Proposed Export Terminals

- Gateway Pacific Project (Cherry Point)• Planned capacity: 54 million metric tons

of dry bulk material

- Millennium Bulk Terminals (Longview)• Planned capacity: 44 million metric tons

Graph of Proposed Export Terminals

The Broad Controversy

Supporters tout economic benefits. Opponents highlight environmental costs and other negative externalities.

The Suggested Economic Benefits

- Income and employment from building and operating the ports

- Secondary spending (multiplier)

- Income and employment from expansion of “upstream” industries

The Suggested Environmental Costs and Externalities

- Coal dust

- Increased congestion

- Damage to local fishing ground

- Contribution to global warming?

- Other?

The Social Calculus

Does the present value of the economic benefits exceed the present value of the economic costs?

Equivalent: Does the stream of additional net income associated with the building and operation of the proposed ports exceed the stream of additional “third party” costs when the two streams are expressed in 2013 dollars?

Issues Associated with the Social Calculus

- Are the beneficiaries of the ports’ construction and operation required to compensate those who are harmed? If not, what does this imply for social cohesion?

- Who has “standing” in the calculation of benefits and costs?• Should the focus be the world; the

United States; Washington State; Whatcom County?

Broad Versus Narrow Scope

- The broader the definition of who has standing, the more likely it is that all relevant benefits and costs will be included in the analysis

- The narrower the definition, the more feasible it is to identify who gains and who is harmed and to implement direct or indirect compensation

- As a practical matter, the analysis should inform the levels of government that are empowered to make permitting decisions

a) Impact studies of local economies (Whatcom and Cowlitz Counties);

b) Employment and income associated with coal exports (U.S. and individual states)

Studies of Economic Benefits

Impact Studies of Local Economy

Cherry Point: Martin Associates

Income Phase 1

$91 million per year

Phase 2

$126 million per year

Employment Phase 1

Between 3 and 4 thousand jobs

Phase 2

Around 1200 jobs

Working age population (Whatcom County): 154,000

Impact Studies of Local Economy

Longview: Berk Consulting

Income Phase 1

$203 million per year

Phase 2

$70 million per year

Employment Phase 1

2650

Phase 2

300

Working age population: 61,000

Caveats About Local Economy Studies

- Implicit assumption: no “crowding out” of jobs or spending

- No crowding out of other capital spending, e.g. less residential construction because of decreased attractiveness of area for retirees

How important are caveats?

Anything Missing From Local Economy Studies?

- Expansion of coal sector via increased exports (but not much impact on local or state economy)

- Expansion of other “upstream” users of port facilities, particularly agriculture, lumber

Economic Impact of Coal Exports

Ernst and Young (2013)

- Salaries, wages and profits per short ton of coal exported = $155 million

- Includes spending impact related to mining and shipping coal through existing ports plus all induced spending

- Minimal economic impact on Washington State

Caveats Regarding Ernst and Young Study

- Marginal impacts may not equal average imports

- Crowding out of employment

- Market for coal exports?

Ignored “Upstream” Impacts

- Ports may be used increasingly for exporting other bulk commodities, particularly grain and other agricultural products

- Potentially significant economic impact on Washington State

Top 10 Washington Export Industries 2011 ($ billions)

Industry Exports

Transportation Equipment $28.1Agricultural Products $11.4Petroleum and Coal Products $3.7Computer and Electrical $3.7Food and Kindred $2.9Machinery (except electrical)

$2.4

Primary Metal $1.8Chemical Products $1.4Waste and Scrap $1.2Paper $1.2

Leading Destination Countries for Washington Exports (Percent of Total – 2012)

Country PercentCanada 29.1China 17.8Japan 12.9South Korea 4.6Taiwan 4.1France 3.5UK 3.2

Inferences

- Increased exports of bulk commodities would benefit Washington State economy

- Prospects for increased exports are good given growth prospects for Asia and Trans-Pacific partnership

- TPP could lead to a more comprehensive free trade agreement including China

- TPP could lead to substantial liberalization of barriers to U.S. agricultural exports (e.g. to Japan)

But What About the Costs?

- Coal dust

- Rail impacts

- Fisheries

- Wetlands

- Global greenhouse gas emissions

Should Global Greenhouse Gas Emissions Count?

- Will China use coal mined elsewhere?

- Will coal exports more natural gas use in U.S.?

- Should environmental policy be directly tied to trade policy?

Environmental Approval Process is Formidable

- Army Corps of Engineers (broad benefit-cost criteria)

- U.S. EPA (can veto permits issued by Corps)

- National Environmental Policy Act - Endangered Species Act- Washington State Commission of Public

Lands/Department of Natural Resources

- County/city governments- Northwest Indian tribes

What’s Needed?

- Comprehensive evaluation of social benefits and costs of proposed ports

- Identification of which groups are made better-off and worse-off

- Assessment of “appropriate” compensation schemes