Extra Funds for Energy Ports Can Ease Carbon Emission Rule’s Sting

At the same time the Obama administration was unveiling landmark regulations on carbon emissions, the president was signing into law a bill giving a dozen ports handling energy exports a big boost in potential federal funding. That move could help ease the pain of the carbon emissions rule, particularly for coal producers shipping their good overseas. And it could help ease the flow of petroleum products exiting the country.

The change in funding came in federal water resources legislation that lawmakers in the House and Senate spent more than six months hammering out differences on, after failing to write a new law for seven years. It mainly authorizes federal spending on projects for ports, inland waterways, clean drinking water and flood mitigation. But for the first time it also directed special funding to the energy industry, a move that could bolster exports that are facing other obstacles.

It does this by redistributing funds collected through a cargo tax to make sure ports putting in large sums get more of that money back. Goods moving through the port of Houston, for example, account for about $100 million generated in the fund annually. But the port, which hosts the biggest petrochemical complex in the nation, typically gets back $25 million to $30 million of that, according to deputy executive director Phyllis Saathoff.

“Energy ports such as Houston, we have an economic impact to the nation on an annual basis of $500 billion, and that’s significant, so we feel that it makes sense to properly maintain the channels that are generating the economic impact,” Saathoff said.

While the legislation sets up the framework for the spending shifts, the changes are still dependent on the congressional appropriations process, Saathoff noted, and the ports will be paying close attention until that process is complete.

FOLLOWING THE MONEY

The redistribution of funds could be a relief for major energy ports, which can use the money to make improvements or expansions or to provide rebates to shippers to incentivize growth.

The extra money comes through a program that aims to equitize spending in a federal trust fund paying for port dredging, among other activities. The fund collects money through a $1.25 tax on each $1,000 worth of cargo, totaling about $1.7 billion each year. Most of the tax dollars are collected from megaport complexes like the ports of Los Angeles and Long Beach in California, which handle huge amounts of import and export cargo. But those same ports often don’t get back nearly as much money as they put in.

So members of Congress set aside $50 million, half of which goes to ports that contribute a lot to the fund but get little in return. The other half goes to so-called “energy transfer ports,” facilities where at least one-quarter of their cargoes are energy products. They are also some of the fastest growing payers into the port trust fund.

With that money, ports can dredge channels and make other structural improvements. But they can also opt to use some of the funds to provide rebates for shippers having to pay the cargo taxes. That means significant relief in shipping taxes for energy importers and exporters, as long as they use one of the 12 harbors in the five states — Alabama, Louisiana, Maryland, Texas and Virginia – that are earmarked for the money. And shipping costs can be a major factor in buyers’ purchasing decisions. Pennies can make a difference.

The new funding mechanism has a broad definition of eligible energy commodities, including petroleum products, natural gas, coal, biofuels, and wind and solar energy components. The 12 designated ports are all large facilities; to qualify, they had to handle at least 40 millions tons of cargo between October 2011 and September 2012.

ONE LESS OBSTACLE FOR EXPORTS

As environmental regulations and competition with natural gas make it increasingly difficult for coal to compete as an electricity source, companies are looking more and more at sending their supplies abroad. A boom in domestic oil and natural gas production that is expected to continue is highlighting reliance on the ports. Exports of petroleum products in particular have increased 10 percent from 2012.

In March, an oil spill in the Houston ship channel brought traffic to a halt for days. The flow of ships will only increase next year when the Panama Canal is expanded, and the boats moving through are expected to be even bigger. The massive changes needed have prompted safety and environmental concerns and earned attention from the industry.

Saathoff says the legislation also could expedite the process for federal agencies to evaluate port projects and allow for ports to be reimbursed when they pay for projects themselves to speed them along.

The boost for port development is a plus for energy exporters, especially at a time when they are facing a handful of challenges.

Coal exporters are seeing more and more resistance at ports on the West Coast. Environmental groups charge that sending coal overseas will contribute more to climate change and negate work being done in the U.S. Oil-and-gas production has also contributed to traffic in the ports. And the industry is fueling a growing push to lift federal restrictions on exports of crude oil and liquefied natural gas.

BACK IN WASHINGTON

The money also carries political benefits for members who represent the states getting the extra funding. Sen. Mary Landrieu, a Louisiana Democrat who is locked in a tough battle for reelection in November, pushed for the set-aside for energy ports in the water resources law. She argued that funding is crucial to building up the U.S.’s domestic production and export capacity. But it also doesn’t hurt that it helps her state’s Port of Iberia. Louisiana exported $6.2 billion in energy-related products in the first quarter of this year, a 5.82 percent increase over the same period in 2013, according to the World Trade Center of Louisiana.

Alabama Republican Sen. Richard Shelby, who championed the ports legislation, is also helping his home state. Alabama’s Port of Mobile, a major export point that has shipped off 43.58 million metric tons of coal in the past four years, has “long-term and widespread” impacts on his state’s economic growth prospects in the coming years, Shelby said.

Shelby, who has not been shy about advocating that Congress retain power of the purse even in these anti-earmark days, told reporters he wanted the funding because it had the potential to make Mobile one the nation’s top-five most active ports. While Mobile’s port officials signaled last year they intended to use at least some of their energy set-aside to dredge docking berths, the appeal of using some of the funding to entice shippers with rebates could set off competition between ports with close access to coal-producing areas in Appalachia.

The Port of Virginia’s Norfolk terminals, for instance, shipped off 170.55 million metric tons of coal over the past four years compared to the Port of Baltimore’s 66.65 million metric tons. But both have good rail and road access to inland coalfields and leaders eager to expand their state’s exports.

That said, port spending can only go so far to help energy exporters. The money may prepare ports for bigger ships, but coal producers are still looking to next year’s highway bill to pay for infrastructure needed to get coal to the ports. And the oil-and-gas industry is still highly reliant on overcrowded pipelines and railways needed to move their products to the coasts. Those routes, like the Keystone XL pipeline, have increasingly become political targets in environmental battles.

Of course, plans to spend money don’t always guarantee the funds will actually make it through the appropriations process. But if it does, it could ease the sting of carbon emissions rules in coal country.

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