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Top tags: Coal  Appalachia  British Columbia  Bubble  Canada  climate change  Energy  energy prices  Finance  Fracking  geopolitical events  health  Mining  Oil Sands  Resource Curse  Toronto  Western US 

Only Geopolitical Events Can Save Coal and the Canadian Oil Sands Now, and That’s A Good Thing

Posted By Austin Zwick, Wednesday, July 12, 2017

Uncertainty lies ahead for the coal industry

Three months ago, I gave a talk at the Institute of Municipal Finance and Governance (IMFG) about the Local Governance and Public Finance Challenges of the Fracking Boom: Lessons for the US and Canada. One of the nuggets of information that got the largest crowd response was pointing out that, because of the speed and lower cost of fracking, the Canadian Oil Sands simply cannot compete at $50 a barrel. There is no new investment into the oil sands now and once the equipment is depreciated and the current capital runs the course its natural life, that’s it. There is no new investment already as major players are pulling out. Five – maybe 10 years from now – speaking of the oil sands will be an anachronism. America is looking at the same story when it comes their coal production. Good for the climate. Even better for the local air. Bad for jobs in current mining communities.

US Energy Production by Source Type (Data Source: EIA 2016). Note the downturn in coal production at the same time as the increase in natural gas starting around 2007. Also “Other Renewables” – consisting of wind, solar, etc. -  make up less than 2 percent of production. They still have a long way to go.

When looking at economic production costs and global prices, there is one factor that I did not consider: the uncertainty of geopolitical events. Qatar could be embargoed by OPEC. The Venezuelan state could collapse. Militants could take over the Niger Delta. As modern industrial societies need fossil fuels to function, any one of these incidents could be game-changers for global energy markets. There is no imminent, suitable alternative to power our homes, cars, and factories. As such, it’s a price inelastic good and therefore small changes in supply and demand can lead to large price fluctuations. Even if one or two percent of global supply is instantly cutoff, the price of oil could quickly shoot back up to north of $100 a barrel. At such prices, fracking will skyrocket past its 2012 peak, but it will also make coal and the oil sands financially viable once more.

In order to protect both the climate and the local air we breathe, there are two strategies that are usually mentioned: (1) an international carbon tax, and (2) investments into renewable energy research and implementation -  particularly wind and solar but also nuclear. We should do these, but I would add a third that is counterintuitive: (3) maintaining world peace and trade networks that keep oil and natural gas prices low. The normal thinking goes that cheaper fossil fuels are, more we’ll use of them and this will slow our transition to alternative energy. This - in general - is true. The laws of supply and demand.

But here is where the rub lies: not all fossil fuels are created equal. Some do significantly more damage to the environment and human health than others. Coal and the oil sands are by far the worst in this regard. Allowing cheaper fuel from fracking – natural gas for powerplants, cleaner oil for transportation – to displace these sources is something that should be commended.

Cesur et. al (2016) found that :

“… natural gas networks has indeed led to a significant improvement in air quality. Furthermore, we show that the mortality gains for both the adult and the elderly populations are primarily driven by reductions in cardio-respiratory deaths, which are more likely to be due to conditions caused or exacerbated by air pollution.”

Lueken et. al (2017) publicized their findings in Scientific American:

“Tens of thousands of Americans die every year from old-fashioned air pollution, generated by electric power plants that burn fossil fuels… if all coal-fired power plants in the United States switched to natural gas—an extension of a trend that is already underway…  We found that such a shift would have tremendous positive effects on human health in America. We estimate that low natural gas prices and state policies that move utilities away from coal are savings tens of thousands of lives and tens of billions of dollars each year.

Both of these studies discuss particulate matter as the main culprit. A type of pollution that is unique to the dirtiest forms of energy. This has flown beneath the radar, but cannot be understated: MOVING AWAY FROM COAL AND THE OIL SANDS IS THE GREATEST UNHERALDED ENVIRONMENTAL ACCOMPLISHMENT OF OUR GENERATION.

Coal kills more people each year (52,000) than the number of jobs it employs (51,000) in the United States. No wonder natural gas has been dubbed a “bridge fuel” between yesterday’s dirty coal and tomorrow’s green energy revolution. A full transition to renewable energy will be the greatest accomplishment of the next generation, and possibly in all of human history. A goal we should strive for, but one that is still a few decades away. In mean time, a continuation of low oil and natural gas prices brought about by world stability will continue this quiet revolution of natural gas. The policy implications of this may seem abstract, but in neighborhoods throughout the country people will breath cleaner air and live longer for it.

What will this mean for your community? Post below!

Tags:  climate change  Coal  energy prices  Fracking  geopolitical events  health  Oil Sands 

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The Mining Industry: A Hidden Culprit Behind Toronto’s Overheating Housing Market?

Posted By Austin Zwick, Tuesday, June 27, 2017

Image result for toronto bubble

When US Housing prices deflated, Canada's kept climbing

I don’t want to talk about whether Toronto’s housing market is a bubble or not. The media has a fascination over that question as can be seen here, here, here, and many more. Economists, who are far more qualified than I, debate that point to death. Even government entities are mixed about it.

But it is undeniable that Toronto’s housing prices have risen far more and far quicker than anyone expected. Consequences include low-income families being gentrified out of their homes by rising rents, middle-class families who find buying their first home farther away with each passing year, and even those who can afford to buy must enter bidding wars where success is dependent upon unconditional offers – asking for an inspection is a deal-breaker and even seeing the house in-person might be too much to ask.

But how’d did this come about? There is no shortage of theories, but I want to posit one that may be overlooked: Toronto has become the global capital of the mining industry – or more specifically the capital of mining finance - and that has led to the city’s rapid transformation.

The mining industry that has become exceptionally more international and more mobile in the past decade. In a free market environment, headquarters and the professional/knowledge workers employed in them are being pulled into ever-larger clusters with the goal of gaining competitive advantage. The Toronto Stock Exchange (TSX) now hosts 75 percent of all mining companies in the world. I posit that the finance industry is crossing sectors from mining to housing, as the workers in this industry walk out of their office doors and head to their ever-more expensive homes outside.

Bay Street in Downtown Toronto

How did Toronto become the global capital of mining?

Canada is big. Very big. Second largest country in the world by land area big. But most of that land is uninhabitable. Because of the weather and the soil can’t support agriculture so far north, ninety percent of the Canadian population lives within 100 miles of the US border. But between the sparse signs of civilization lies incredible mineral wealth. Over 220 active mines extract over 60 minerals, as it’s a key driver of employment and external investment in the country. Canada's economy is dependent on resource extraction.

The country (a) prioritizes infrastructure investment, (b) protects the rule of law, (c) maintains a fair and predictable regulatory landscape, (d) promotes free trade, and (e) is welcoming of foreign investment and foreign workers. A combination that, although common in the western world, is exceptionally rare when it comes to resource-dependent countries. Rather, most countries suffer from “the natural resource curse” which is the paradox that those with extraordinary mineral wealth experience slower growth and instability as they tend to be plagued with corruption, armed conflict, and a poor record of human rights and business protections.

Toronto serves as Canada’s business capital with Bay Street - Canada’s Wall Street – as the focal point of a knowledge ecosystem of researchers, government, and business administration. The city serves as the bridge between the broader world economy and the development of Canada’s natural resources. To take advantage of Toronto’s business environment, to partner with other firms, and to raise capital, it has become advantageous for mining companies to co-locate in Toronto. This agglomeration of mining has flooded Toronto with investment dollars. This wealth has spilled over into the housing market.

Because of bidding wars, all houses sell for over asking in Toronto. Asking prices are only what the bidding starts at.

How is the government responding?

As financiers bid up the price of housing, Toronto faces a worsening housing affordability crisis. CEO Evan Siddall of Canada Mortgage and Housing Corporation (CHMC) – the public entity responsibility for regulating the housing market with the dual goals of promoting homeownership while maintaining financial stability - expressed concern about the level of indebtedness Canadians are taking on to purchase homes. The Bank of Canada Governor Stephen Poloz has issued a warning about the “unsustainable” rise in Toronto real estate prices, but stopped short of referring to it as anything but reflecting fundamentals of job and population growth. The federal government has tightened house lending rules by (a) introducing tougher requirements to qualify for a mortgage and higher minimum down payments, (b) increasing reporting requirements to catch tax-dodgers, and (c) tightening rules on mortgage lenders including more stringent stress tests.

The Ontario (provincial) government recently passed a series of reforms into law intending to make housing more affordable for residents. This includes (a) expanding rent control policies to cap how fast rent can be increased on current tenants and further protections for them from being unduly evicted; (b) creating new policies that would expand housing supply by expediting condo approval near transit nodes, promoting greater infill development, and investing in government rental housing; and (c) following British’s Columbia’s lead, placing a 15 percent tax on foreign homebuyers to ensure that residential units are homes for locals foremost instead of a financial investment for those living abroad. Even though the policies have only been in place for a few weeks, anecdotal evidence suggests a cool-down of Toronto’s housing market

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Canadian oil sands workers. Oil is Canada's biggest natural resource extraction industry.

But is mining really responsible for the rise in prices?

We don’t know, but it is worth further research. Financial capitals – London, New York, Singapore, Tokyo, etc. – throughout the world have seen dramatic prices increases. As Toronto joins the finance club, it would make sense for the pattern to follow. After all, Toronto still looks cheap in comparison. But there is yet to be hard evidence to prove this relationship.

Maybe Toronto is being hit by a different kind of resource curse: one where the finance of the industry makes the business capital too expensive to live in for regular folks. It's impact felt downtown instead of the hinterlands.

Do you find this argument convincing? Why or why not? Post below!

Tags:  Bubble  Finance  Mining  Resource Curse  Toronto 

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Canada May Soon Kill American Coal Communities. What then?

Posted By Austin Zwick, Tuesday, May 30, 2017

Coal workers heading home at the end of a shift (Nov. 12, 2015)

By placing a 20 percent tariff on Canadian softwood lumber, President Trump fired the first shot in a potential trade war with Canada. British Columbia (BC) Premier Christy Clark responded with an open letter asking Canadian Prime Minister Justin Trudeau to consider banning imports of thermal coal from the United States. A proposal that the Trudeau government is taking seriously, as it aligns with their well-publicized goal of phasing out all coal power generation by 2030. Doing so may very well be the nail in the coffin for coal communities in places from West Virginia to Montana. If this policy change occurs, what might happen to these places afterwards? There are no good answers.

What is thermal coal?


Ranks of Coal from Lignite to Anthracite

Coal is a fossil-fuel rock that is made up of mostly carbon, with remaining portions of water, air, hydrogen, and sulfur. It’s often mixed with additional impurities that do damage to the local air and environment when burned (see below). But the open letter was not intended completely phase out coal, but rather thermal coal specifically. As on the chart shown above, there are four main kinds of coal: lignite, sub-bituminous, bituminous, and anthracite. Lignite to low-grade bituminous is used exclusively for electricity generation, known as thermal coal. This most plentiful kind of coal has a lower carbon content and more impurities than higher-grades, making it the most environmentally damaging. High-grade bituminous coal is known as coking coal, which is used to produce coke - a key input in steel production. Anthracite, the rarest of coals, is very high carbon and burns much cleaner compared to other coals. It’s prized for its minimal impurities and therefore used almost exclusively in industrial production.

Why do the impurities matter?

Coal Exhaust from a power plant (Nov. 18, 2014)

Gases released during the burning of coal include carbon dioxide, hydrogen sulfide, ammonia, nitrous oxide, and sulphur oxide. The last two are the cause of acid rain, while nitrous oxide is 300 times more potent of a greenhouse gas than CO2. Additionally, burning it releases coal ash into the local environment and often includes trace amounts of toxins including lead, germanium, arsenic, and uranium. The David Suzuki Foundation points out that, “Air pollutants from coal plants are known to produce heart and lung diseases, aggravate asthma and increase premature deaths and hospital admissions. Coal plants are also a significant source of mercury that is harmful to children exposed during pregnancy and in early life.” This has lead health and environmental groups, such as the Pembina Institute, to call for Canada to completely phase out coal for electricity generation by 2030. A call that Trudeau answered.

Why the Open Letter?

President Trump and Prime Minister Trudeau (Feb 17, 2017)

As the United States moves away from coal - more due to it no longer being price competitive compared to natural gas from fracking, not environmental regulation -  coal companies cite port expansion on the as a necessary lifeline to their declining industry as American ports currently lack the capacity to meet East Asian demand. But West Coast states have continued to deny expansion permits to based off of environmental concerns. As the next best alternative, American coal companies have turned to Canadian ports in British Columbia.

This puts the Province’s pro-environmental politics at the center of a critical juncture in coal’s supply chain.  As BC does not use coal for electricity production and do not produce much thermal coal themselves, they have little incentive to help the industry and every incentive to hurt it. Even if Trudeau doesn’t ban thermal coal imports because of the softwood dispute, Christy Clark wants to tax the thermal coal industry out of existence.

What do American coal communities do now?


Mayor of Appalachia, VA after working a night shift in a coal mine (Oct. 26, 2012)

That is the question. There is no easy answer. East Coast mining companies have already started filing bankruptcy, and Rocky Mountain mining companies may soon follow suit. Unlike the boom-bust ghost towns of mining’s past, these communities continue to exist long after their economic underpinnings dissipate. They are left with devastated environmental landscapes, and often struggle with health problems from black lung to obesity. Without work, what then?

Some scholars, like Ed Glaeser, believe that the only answer is to stop subsidizing places – in effect, abandoning them – and instead subsidize people to retrain and move elsewhere. But is it fair to uproot whole communities? To ask people who have lived their entire lives in one home to move across the country?  

What are your thoughts? Any ideas? Post in the comments below!

Austin Zwick
PhD Candidate in Planning
University of Toronto


Tags:  Appalachia  British Columbia  Canada  Coal  Energy  Western US 

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