Gateway Pacific Terminal: Conflict Resolution

On a topic like coal ports, it takes a certain kind of agility to bridge the gap between two opinionated groups and their entrenched mental models. Just Google "Gateway Pacific Terminal" and you will arrive at pages like these:

Gateway Pacific Terminal - Frequently Asked Questions

gatewaypacificterminal.com/the-project/f-a-q/Share

Frequently Asked Questions about plans for Gateway Pacific Terminal, a port facility that will create hundreds of new jobs and millions of dollars in taxes.

Gateway Pacific Terminal - RE-Sources.org

www.re-sources.org/home/Gateway-Pacific-TerminalShare

For now, you can continue to find information about the massive, dirty coal export proposal for Cherry Point at this page. But for the most updated information, ...

We start to see a pattern like this one, dominated by increasing alienation:

Soon the gap in beliefs, language, and means of justification becomes so wide as to make mutual understanding virtually impossible.

I admit to being guilty of this myself. I watch the scoping process like one might watch a scoreboard, celebrating with the high anti-coal turnout at the Oct. 27th meeting and gritting my teeth at the strong pro-coal showing on Nov. 29th. Yet I have to agree with the observations posted in this blog by Bellingham Herald's John Stark:

"Lots of people in Whatcom County are supportive of Gateway Pacific. You might not like that, but it is awfully hard to deny.

"Demeaning the character or the intelligence of those people is a dubious political strategy. It strikes me as morally dubious too."

We have to be careful that the tactics we choose do not demean our own intelligence.

It has been my opinion that the role of logic in a debate like this is not to overload one's audience with facts, but to bring them (and ourselves) from the place where they are, by statements which they can accept within their own mental model, to a place where we both agree.

To that end, I am challenging myself, in the next two weeks, to speak with at least three people or organizations representing a pro-terminal stance. I will seek to enter the conversation with no other agenda than to understand where their mental models originate.

I suspect I will find their views to be quite logical and based on the current realities of our economic system. Norm Becker here cites an article by Dr. Ted Trainer of South Wales, which outlines the kind of fundamental changes our entire economic system would have to undergo in order to survive without growth. First of all it details how the two cannot be compatible: a sustainable economy and the one in which we operate today.

Secondly it states why environmentalists have such a hard time communicating the need for radical change to the public at large: "The reason [being] of course that if they spoke up against the pursuit of growth and affluence in a society that is fiercely obsessed with these goals, they would quickly lose their subscribers."

I argue that a society does not need to be fiercely obsessed, but only merely concerned with the goal of growth so far as it underlies basic well-being, to keep the status quo in place. It is little wonder that labor unions, politicians, or the unemployed might support a coal terminal, given that little else in the way of employment will be available in the next 10-20 years.

I would like to say that all the "dirty" jobs projected at the terminal could be replaced with "green" jobs in the near future. Yet from my experience with a green startup, I will admit that our facility boasts only 8 full-time positions at maximum operations. Even if I find the numbers surrounding the coal terminal somewhat dubious, I know our company cannot possibly hope to compare to their promised employment.

In the business of transforming business, we might forget that many of our assumptions rest on the world "as it should be". Regardless of how necessary that vision is for the world to continue in any shape or form, it overlooks much of the world "as it is".

Third, Dr. Trainer paints a picture of what the zero-growth economy would look like, and yes, it is very different from the one we have now. In my view, we may arrive at his end goal faster if we go by increments instead of by complete revolution, because of people's natural disinclination for change.

Lastly, he shares his idea for how this transformation may be brought about.

So to answer my original question: "What can concerned citizens do?" I propose talking to our neighbors. Let's meet them halfway and see what positive energy comes from that interaction. Results will be posted on my return.

Gateway Pacific Terminal: An Unexpected Twist

We've talked a lot about globalization in the last week: whether it's good or bad, should it be limited, how should it be harnessed, etc.

There's an unexpected consequence of a globalized coal market, described in this NPR podcast. Opening trade routes to China could actually precipitate a switch to cleaner fuels in the US. Here's how it works:

Montana and Wyoming, prevented by their landlocked location from shipping the desired quantities of coal overseas, are currently unable to tap into markets where coal captures a 400% premium over domestic sales. Alter this scenario by constructing two major export terminals, and it makes sense for these US states to ship all their coal overseas. Domestic users of coal-fired energy must then either reduce their consumption by switching to natural gas, or pay the higher price (illustrated below).

Image Credit: Jason Welker, welkerswikinomics.com

Considering that US coal exports would satisfy only 3% of China's demand, yet might lead to precipitous drops in domestic consumption, it's difficult to say whether the effects will balance out. Since coal is already losing its edge to cheaper, cleaner-burning natural gas, it could be that higher prices once and for all end an era of US coal consumption. It could also be that the coal-based Chinese economy we help usher in more than cancels any gains from foregoing a fuel that was about to be phased out anyways. It depends how you look at the situation.

As Jason Welker points out, it looks pretty well if you think only locally. It's when you examine the global repercussions we've seen, that things become more complicated.

(An interesting facet of globalization: it assumes that the free flow of goods across international boundaries achieves the highest state of efficiency by allowing each country to specialize where it is most productive. It also assumes, however, negligible losses in the transit of these goods. The costs of a coal-export terminal, of shipping, and environmental pollution do not factor into the equation.)

I hesitate to throw up my hands on the presumption that the situation is beyond my comprehension, but I don't hesitate for long. I've already encountered the difficulty of predicting whether exporting coal now would cause reserves to run out sooner, or merely facilitate the tapping of costlier reserves. This unexpected twist is just one more loop in the system that makes the true environmental outcome so hard to foresee.

Norm Becker features this article in his latest post, which posits that economic theory is sadly lagging behind economic reality. It acknowledges that through most of human history, connections between local economies "were tenuous and intermittent." It further argues that today's society calls for a much more reality-based, empirical approach. I completely agree. I also think it unfortunate that this call comes at a time when empirical approaches are the hardest to execute. How do you experiment with something like a coal port? How do you draw conclusions when large systems don't always mimic small systems, when unforeseen factors are constantly creeping in?

Speaking of the hard-to-foresee: the NPR podcast also points out that if Mongolia were to simply upgrade its rail lines to supply coal to China, the US export terminals could be rendered completely unprofitable, never to ship "a single lump of coal". While I normally think of large corporations as having the system on their side, it's strange to imagine they may be banking so much on flimsy barriers to entry. Now do I chuckle to myself and say, "Let SSA Marine take the hit" - or do I flag this as one more reason Bellingham should refuse to have this coal port built?

I wish it were that simple.

Intermission

We will take a brief intermission from the topic of coal ports to examine the tangentially relevant issue: Environmental Impact Statements. We saw in the last post that indirect effects from a project like the Gateway Terminal occur on a global scale that cannot be truly captured in an EIS. Do other forces likewise limit the ability of an EIS include direct, local impacts?

It is entirely plausible that the contents of an EIS are influenced by economic considerations. Some factors may be lessened or left out simply because they’re “inconvenient” to consider. (A former professor of mine, Jean Melious, explains how this might happen.) Does the EPA itself fall prey to this mentality when jobs or economic well-being are at stake?  Let’s not talk about that just now....

Let’s talk instead about the statement of cash flows. This is a financial document stating how well a company is doing on a day-to-day basis, measured by its free cash flow. How do company biases figure in?  Is there an ethical conflict when the ones who benefit from an airbrushed portrait also prepare the statement?

Two statements potentially subject to "fudging". We may have encountered an issue here. The issue being that currently, environmental protection fits on the statement of cash flows – as an expenditure. Permitting, mitigation, the purchase of scrubbing equipment – all of these are presented as a burden.

Any company in their right mind wants to narrow the scope of the EIS, because otherwise they will be swamped in cleanup projects – having to restore baby seal habitat in exchange for building out a waterfront, for instance. (In 2004 the city of Bellingham took on the project of removing creosote-coated pilings in exchange for building a waterfront boardwalk. You might expect a waterfront boardwalk to have the positive environmental impact of bringing public awareness to the shoreline. Yet, as we see, the line between cost and benefit is a finely negotiated one.)

Rarely are the restrictions prescribed by an EIS viewed as an opportunity. Yet I have encountered some exceptions. A cohousing development across town uses their spare space to accommodate a living wetland, complete with orchard and creek. At some point I expect it occurred to them that providing open, undisturbed space would attract residents, perhaps even persuading them to pay more.

It brings to mind a Mastercard commercial:

Wetland restoration: $100,000

Park bench: $1000

Planet Earth: priceless.

The problem being that returns on “green investments” generally appear in guise after some time has lapsed, whereas the statement of cash flows demands, “Do you have enough cash to cover expenses now?” Knowing this, what environmental changes can be made that pay off before paying out? How could the statement of cash flows be altered to highlight the positive returns on these investments?

Bob Willard in The New Sustainability Advantage talks about several concrete ways in which this might happen. First is in decreased Cost of Goods Sold (COGS). What if a construction company uses 30% salvaged material? Labor costs may rise, yes. But consider that material purchases make up 50-80% of expenses for American manufacturing companies (Willard). And rising material costs have outpaced construction bids since 2004. An decrease in material costs will more than compensate an increase in labor.

What factors into a company’s COGS? Materials and labor. Take that down by even 10%, and you’ve achieved a 5-8% increase to the bottom line. This is your net income – the starting point for the statement of cash flows.

Divert half the immediate benefits from such a project into what Willard calls a Sustainability Capital Reserve, and you have the needed cash to carry out the next project. What if the statement of cash flows began with that positive bucket of cash carried over from last year’s sustainability initiative?

Compare the accumulated savings to the cost of lobbying against EPA measures, or paying lawsuits.

Being ahead of the curve: pretty near priceless.

P.S. It will be interesting to watch how a similar mentality plays out on a national scale abroad (see Norm Becker – "Merkel's Economic Advisers Oppose Increases in Spending"). Will expenditures on such items as support for stay-at-home moms cripple the German economy or bolster it?

Unfortunately the effects are going to be hard to measure. Perhaps the added income will induce more spending in new households. Perhaps it will reduce unemployment rates as young mothers are freed to take care of their children, leaving the labor force. Or perhaps it will induce households to earn less overall. It may place a disproportionate burden on single moms who need to work. Or single moms may quit their jobs in order to receive benefits, becoming dependent on state income.

If everything were as simple as the above example of a construction company & COGS, we would have a much better idea of where to put our investments. As it is, tracking cash flows back to their source is an art form at best, and even less clear when applied to the long-term cause & effect loops of sustainability.

Connecting the loops from past actions to present benefits may be the next worthwhile pursuit. We either have to change the language we use to talk about sustainability, or change the time-frame we use to examine the success of economic initiatives.

Gateway Pacific Terminal: Deepening the Conflict

I noticed a discrepancy in my last posting (Gateway Pacific Terminal: Developing the Conflict). I stated that the cheaper the price of coal now, the more dependent China becomes upon coal, hence a more lasting demand on coal. I also said that the higher the price charged for coal, the more revenue mining companies earn on each remaining unit of a finite resource. I defined “finite” in the sense of a resource becoming increasingly dangerous & difficult to extract. That said, given enough demand, it will remain economically feasible to extract the resource at higher and higher stakes.

So, in a sense, by charging a relatively low price for coal now, we are able to hook China on fossil energy by virtue of the lasting infrastructure they develop during the next decade. This “new opium” may in fact be a viable means of balancing the trade deficit as their growing demand and rising prices justify further extraction of US coal.

I can see this move as unequivocally good for the US economy.

Finally we have a good they cannot resist, at least, unless they create strict measures to curb dependence on fossil fuels. Never mind that they have their own coal reserves perfectly ready to exploit once the price of foreign fuels climbs too high.

So, now that we have hit upon a way to permanently secure our economic superiority, we can focus on mitigating some of the less desirable impacts.

One of these is the so-called “brown cloud”. Because we have no way yet of reversing the westerly winds that travel across the Pacific, we are subject to whatever particulate pollutants drift across the ocean from China. Ever wonder why toxic mercury should be found in Alaskan salmon, when US mercury emissions have been under government control since 1990 (“Mercury: Controlling Power Plant Emissions." US EPA)? This is one of the unfortunate consequences of living downwind from neighboring China.

Image Credit: Damion Design 2009

We can’t regulate what China burns. We cannot force them to use “clean-burning” technology like our own. That would be under the jurisdiction of the UN, which is notoriously lacking in its decision-making abilities and follow-through. Our best bet would be to amass wealth from the transaction of coal, in the future event we need to put military sanctions on China for not living up to our standards of environmental compliance.

For how military spending may bring returns as a source of innovation, see this New York Times article, cited by Norm Becker in his post "The Permanent Militarization Of The US".

Gateway Pacific Terminal: Developing the Conflict

The promised analysis of loss/benefit flows:

Image compilation: Kathlyn Kinney

A strong showing of beneficiaries (on the right) explains why this situation is so hotly debated.

Interesting to look at are those actors which fall in the middle. The BNSF railway company will certainly realize profits from increased shipping needs, but may wind up cleaning the coal dust from their tracks (or risk derailments). Canada, it is said, will hardly notice the effect of competition because the demand for coal is so astronomical.

Noteworthy in this diagram is that many of the beneficiaries (from Goldman Sachs to Christine Gregoire) are those who can take their profit – or their vote – & slip quietly from the scene. The entities left to bear the enduring burden are such as the Lummi Nation, the salmon population, and the atmosphere (along with, incidentally, everyone who breathes it).

If a Venn diagram were drawn of the long-term benefits and losses, it would likely show a migration from right to left, as actors even such as the US realize they have fallen behind in the wake of shortsighted gain.

Alyssa Mehl commented on the 49% ownership of SSA Marine by Goldman Sachs mentioned earlier. This is not inherently a bad thing. A well-endowed investment firm puts forward the funds to move a major project forward. They reap a portion of the rewards and are therefore able to invest more.

An illustrative diagram came up in last week’s discussion about how the economy should work versus how it does work:

Without money flowing downward there would be no wages, and without money flowing upward to the “big guys” there could be no massive investment in worthwhile projects. In a sense, the system works. Regardless, a constant policy battle embitters these two factions.

For perspective on why this might be, see “Some Are More Unequal Than Others” by Joseph Stiglitz, brought up in Norm Becker’s “The Cost of Inequality”.

This begs the question: are the people at the bottom of the pyramid any better equipped to make decisions regarding proper investment than the people at the top? There is varying evidence either way. Right now in Bellingham, two picket sign campaigns wage war. On one side, “NO COAL PORT”, “POWER PAST COAL”, “Another Family Against Coal” – and on the other, “GOOD JOBS NOW”. (It took me some time to realize that this last sign pertained to the Gateway Pacific Terminal. It’s tempting to put out a modified “DIRTY JOBS NOW”.) The immediacy of the demand in this last one is telling. It’s altogether possible that ordinary people are just as (if not more) concerned about the short-term and the bottom dollar as the investment firms.

Image compilation: Kathlyn Kinney

I personally believe investment is the key to our sustainable future. If I were to write the definition of sustainability, it would be: “The ability & incentive to direct current resources toward future benefits.” Large investment firms play an incredibly vital role in this. They simply must invest in the right direction.

Unfortunately, the current trend sees investment pouring into “proven” sectors, some that exacerbate environmental or social welfare issues, and many that represent dying industries. What do I mean when I say this? Coal certainly does not seem to be a “dying industry”. It is, in fact, doing remarkably well. What I mean is that it is based on a finite resource that will become increasingly difficult and dangerous to extract. It will grow obsolete as the world moves toward cleaner energy infrastructure. It is based not on continuous innovation, but continued reliance on a dwindling reserve. In short, it defies the first law of The Natural Step:

“In a sustainable society, nature is not subject to systematically increasing concentrations of substances extracted from the Earth’s crust.”

So, turning to the question: Is this good for the economy? What happens when we have what looks to be essentially infinite demand (in the case of China) for a finite resource? Let’s take a look at the supply and demand curve:

OK, now let’s zoom out to get a better picture:

Notice that the demand curve is high, but not inelastic. I have every reason to believe that consumption of coal by Chinese markets is in fact influenced by the price of coal. Cheap energy fuels inefficient infrastructure. The opposite – expensive energy – requires more compact and resource-sensitive development. China is right now in its rapid-development phase. The built infrastructure is not yet in place. Therefore the costs and delays of rebuilding an inefficient system do not apply. Imagine someone considering the purchase of an energy-efficient vehicle. This is a much different decision for someone buying their first car than for someone who already owns a perfectly good gas-guzzler.

This does mean, however, as the Chinese decide whether to build “coal-guzzling” cities, that the price of coal now will determine the demand for coal for many years to come.

So, what if the supply curve, as we can see, shifts outwards? This is the effective result of pumping more coal through the Bellingham port. Price drops. For each unit of coal produced out of the remaining supply, the mining industry earns less than if they held out over a longer period of time.

There are a few poignant reasons why this logic has not taken hold in the real world. For one, while the world market price for coal may increase due to Montana and Wyoming’s restraint, Wyoming and Montana would likely find themselves out-competed for profits. This partially explains the collapse of the OPEC oil cartel after 1981 (Goodwin, N. Microeconomics in Context. 2^nd ed. 2009. p. 106). Coal is a fairly undifferentiated good, leaving individual players like the US relatively powerless, and yet paradoxically responsible.

The anti-coal coalition is fighting, in effect, a market-driven move toward a higher-production equilibrium – Adam Smith’s invisible hand at work. I liken it to the sale of cigarettes or soda-pop on a global level – just because money can buy it does not mean the market should supply it. Here we see perhaps the most glaringly uncomfortable flaw of capitalism: investments made for profit do not inherently enhance the wellbeing of the world.

Gateway Pacific Terminal: Introducing the Actors

In the unfolding narrative of the coal-export terminal scheduled to be built at Cherry Point, I'll be asking several questions:

First, who are the actors?

Image compilation: Kathlyn Kinney

Next, where do the benefits flow?

This is noteworthy in the context of the massive trade deficit garnered by the US toward China. (See Norm Becker on "Does Growth in the East Depend Upon Consumption in the West?") Coal may be one of the few remaining exports capable of balancing that deficit.

While this may look good to lawmakers, there may appear to be a conflict of interest in that SSA Marine is 49% owned by Goldman Sachs.

Where are the losses felt?

There are already instances of the coal-mining industry cutting safety corners to meet burgeoning demand oversees.

Photo credit: Paul Damien, National Geographic

In this 2010 National Geographic article ("Mine Tragedy Amid Push to Produce More"), a former U.S. Mine Safety and Health Administration investigator points out that current investigative practices rely on interviews with responsible parties and focus only on technical causes of accidents, rather than public hearings which might unearth larger issues of voluntary oversight.

The common conflict of profits vs. precautions will likely come into play in a work environment exhibiting high exposure to coal dust, a cause of black lung cancer.

It promises little to address the effect of coal dust on the broader population, with direct and indirect health costs from fine particulates amounting to $190 million per year according to the Washington State Department of Ecology (2009 report: "Health Effects and Economic Impacts of Fine Particle Pollution in Washington", as cited in "Health Impacts of Coal Transport on Communities").

It will almost certainly ignore the affront to the sovereignty of the Lummi Nation, which attaches not only economic, but spiritual and cultural significance to Cherry Point (STPO - Xwe'chi'eXen (Cherry Point) Position "NO"). They will be hard-pressed in the months ahead to bring to the table a more holistic view of "environmental services".

Over the following weeks, I will delve into:

Whether the terminal is good for the economy in the long run

Even if it is good for the economy, is it good?

Does an environmental impact assessment capture this?

How can it be captured?

And lastly, what can concerned citizens do?

Gateway Pacific Terminal: Setting the Stage

Good to be back in the blogging world. It's at this point I look back at a blog begun January 2011 in Sustainability Marketing class and think, "I should have seen a sustainable business degree coming".

Had a conversation on the bus this morning with a gentleman studying biology and geography at WWU. He waxed eloquent on the wonders of the natural environment and how we shouldn't be destroying it all. It's in these situations I love being able to say, "We're working on that!"

My hope & dream for the coming year: being able to say, "We did that."

This brings me to a topic that surfaced in an earlier post (Bellingham Scheduled to Become Major Coal-Exporting Port) and has since raged back and forth beneath the subdued surface of my home community.

Right now we're in the middle of the scoping process, with one session yesterday, Oct. 15th, and another Nov. 3rd. These determine what factors will be considered in the environmental impact assessment. (Does "establishing system boundaries" sound familiar?)

A group called "Safeguard the South Fork" is equipping public participants to submit meaningful comments during the review (tipping the "self-organization" leverage point).

It turns out that where the system boundary is drawn can make a big difference. The Gateway Pacific Terminal site claims the completed project will furnish 1,250 long-term jobs. This doesn't take into account whether adverse effects to the local marine ecosystem will cause a collapse in the fishing industry, which currently numbers among major employers in Bellingham.

It doesn't take into account where housing will be built to accommodate these workers. If it expects them to commute from Bellingham, it's not factoring in transportation costs to the community.*

(*With further research I found how they solved this dilemma: by claiming a maximum of 213 long-term jobs on the traffic impact segment of their land use application.)

I plan to take a look at some of the systems elements in this situation over the next few weeks, and maybe locate a few more "leverage points".