Privatization and comparative advantage

This is a great story on a part of Washington’s economy: The boutique booze boom in Washington. It begins by talking about Westland Distillery’s Emerson Lamb:

“It has been our stated goal to put Washington state on the map as the world class place to make single malt whiskey alongside Scotland,” said the 25-year-old Lamb.

Lamb’s declaration, which would have drawn fall-off-your-barstool-laughter a decade ago, is not only gaining traction among distillers but has also set off a race to deliver the first great single malt in Washington state — and to grow the barley to make that happen.

Indeed, researchers from Oregon State University to Washington State University have confirmed what Lamb and farmers have long suspected: that the maritime climate here mirrors that of Scotland, where some of the world’s best single malts are made.

According to the article, Washington has the most micro distilleries in the country — a situation that was brought about thanks to the Legislature getting the state out of the way in 2008 by making it easier to open a distillery.

The story notes that liquor privatization brought craft distillers new challenges because they no longer have the ease of dealing with the state monopoly rather than various individual stores. One would think that the competition required by privatization has helped to strengthen the distillers in the business. Separated the wheat from the chaff, if you will.

Even better, it seems that privatization has made distillers focus on what might be Washington’s comparative advantage:

Many believe single malt, uncommon in America, is one way to get onto those shelves.

Many Northwest distilleries believe they can dominate the single malt category much like Kentucky has dominated the bourbon market. The Northwest has better growing and aging climate to make single malt than other regions, they say.

In June 2010, after planting more than 1,000 different types of barley and wheat around Western Washington and other areas, WSU’s Jones concluded that the maritime climate from Vancouver, Wash., to Vancouver, B.C., is ideal for growing the barley strains that have low protein and high starch, the same types that produce a “complex flavor — sweet, but not white-sugar sweet,” he said. “You can compare it to a maple syrup … It has a very natural sweetness.”

This means new opportunities for farmers as well:

There are only a handful of regions around the world that have the right climate to grow this type of barley, Jones said. . . .

“There was zero winter barley planted in Skagit County five years ago. Today, there’s at least 5,000 acres,” Jones said. Nearby counties are also starting to grow barley.

(On that point, per USDA, Washington ranked 4th in the nation in barley production in 2013.)

Agricultural production in Washington valued at over $10 billion

According to the National Agricultural Statistics Service, the value of Washington’s agricultural production was $10.2 billion in 2013. (Up from $9.97 billion in 2012.) This is a new record high. Additionally, “Record high values of production were established for five of the top ten Washington commodities, including milk, potatoes, cattle and calves, grapes, and pears.”

As shown in the table below, apples are still Washington’s highest value agricultural commodity ($2.2 billion), though their value declined by 11.8 percent from 2012 to 2013. Milk is now second ($1.3 billion), as wheat falls to third ($1.0 billion). Hops jumped up quite a bit, from 14th to 10th — a 40.3 percent increase in value.

More at the link, including a table that shows how Washington crops and livestock rank nationally.

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Port delays hinder trade

The Ports of Seattle and Tacoma have significant economic impacts for our region. They have apparently been experiencing delays:

A work slowdown at the Pacific Northwest’s two largest ports Wednesday began affecting businesses as distant as Chicago as major port terminals stopped accepting export cargoes and cut the pace of imports by half.

Fruit growers in Eastern Washington, retailers and exporters in the Midwest were among those who felt the effects Wednesday of the labor dispute between union longshore workers and their employers at the ports of Tacoma and Seattle.

That slowdown by the International Longshore Workers Union was delaying the departure of ships at terminals in Seattle and Tacoma and was on the verge of causing shipping lines to divert their vessels to other ports.

Not only could the situation impact the competitiveness of our ports, it is affecting Washington growers:

That inability to move those containers is expensive to shippers. One major Eastern Washington apple grower reported that he had 43 containers of apples destined for export turned away at the marine terminal gates in the Puget Sound this week. That grower said storing those containers awaiting access to the terminals is costing him hundreds of dollars a day.

That same grower, said Todd Fryhover, president of the Washington Apple Commission, told him that a shipment of 140 containers of apples scheduled for this week was postponed a week by the shipping line.

“This slowdown couldn’t have come at a worse time,” said Fryhover. The Washington apple industry, which has harvested a record crop this year of more than 140 million boxes, is depending on foreign markets to absorb the increased production.

The Packer has more:

“One of our shippers exporting potatoes through Tacoma had been shipping 50 containers a week,” Matt Harris, director of governmental affairs at the Washington State Potato Commission, said Nov. 5. “They thought maybe three to five would still go, but then they couldn’t do even that. The stoppages and slowdowns are just too much.” . . .

“We’re looking at a very large apple crop,” [Jon] DeVaney [of the Washington State Tree Fruit Association] said. “Our shippers wanted to increase exports this year. Anything that interrupts our ability to keep fruit moving is a serious problem.” . . .

“We’ve communicated with our federal friends in Washington, D.C.,” Harris said. “We understand this is a negotiation, but to slow things down to where commerce stops and damages our ability to deliver a high-quality product to a consumer overseas, we can’t live by this. It really hurts.”

When our products can’t get to market — whether because of issues at the ports or on the way to them — it is a serious problem for our trade-dependent economy.

News from Washington’s agricultural economy

I liked this editorial from the Yakima Herald-Republic last week: Grant County apple growth complementary, not competitive.

Grant County’s increasing production simply means that business as a while [sic] is expanding, and it further enhances the importance of agriculture in Washington’s economy. Continued success requires the business and political communities to focus on the key issues that make the industry possible: water supply, sensible regulations, labor supply, shipping infrastructure, access to ports, free and fair overseas markets, and savvy marketing of Central Washington’s products.

And here’s a good article from the paper on the hops harvest and shortage of workers this year.

The seasonal scarcity of agricultural workers, many years a headache for the apple industry, now is affecting the Yakima Valley’s plentiful hop harvest, forcing the region’s two signature crops to compete for labor.

To keep up with the surging growth of a national craft beer industry that opens a brewery a day, Washington commercial growers, located exclusively in the Yakima Valley, boosted their hop acreage by 7 percent and expect the largest crop in five years. That means more vines to cut and cones to process.

Growers are increasing compensation, turning to the H-2A temporary work visa program, and automating some of the work.

Facility permitting and rail investment news

There have been several developments in the oil and coal port world over the past week:

  • A new economic analysis of the proposed Tesoro Savage crude oil loading facility at the Port of Vancouver (Wash.) found that it “could generate an estimated $2 billion in ‘economic value’ to the local and regional economy, and 176 permanent on-site jobs once the facility is fully operational.”
  • Oregon denied a “key permit” for Ambre Energy’s proposed coal export facility at the Port of Morrow. (The decision can be appealed.) According to the Oregonian, “The terminal, one of three export facilities planned in the Pacific Northwest, is the smallest and furthest along.” (We wrote about the other two, Gateway Pacific Terminal and Millennium Bulk Terminals, along with Tesoro Savage, in a policy brief on the expanded SEPA earlier this year.)
  • British Columbia, on the other hand, just approved a coal export facility near Vancouver (Canada). Fraser Surrey Docks plans to export about 4 million tons of coal a year, starting in 2015. (As we noted in part 2 of our Trade and Transportation series last year, British Columbia ports are competitors of those in Washington.)
  • Meanwhile, BNSF Railway “is spending $235 million across Washington to upgrade track and roll out a computerized safety system that experts say can prevent devastating train accidents.” (In part 1 of the Trade and Transportation series we wrote about the primarily privately funded railways.)

GE labeling, fear, and “consumer choice”

Michael Specter has a good blog post at the New Yorker today — “The Problem with G.M.O. Labels.”

He makes some of the same points we made in our report on Initiative 522, which would have required labeling of genetically engineered foods but was rejected by Washington voters last year. (An initiative requiring labeling will be on the Oregon ballot this November.)

Americans demand labels, at least in part, because they are afraid. And they are afraid because of the kinds of assertions made by people like Vandana Shiva, an Indian activist whom I Profiled this week in the magazine. Shiva and her allies talk constantly about dangers of G.M.O.s that are not supported by facts.

G.M.O. labels may be a political necessity, but they make no scientific sense. Most of the legislation that has been proposed would require a label that says something like “produced with genetic engineering.” Almost none of the labels would identify any specific G.M.O. ingredient in any particular food. In fact, the laws now proposed are so vague that many of the foods in a grocery store would have to carry a label. They would tell you how your food is put together, but not what it contains. How could that help anyone make a sound decision about his health? . . .

Activists speak loudly about consumer choice, but many of them want, ultimately, to ban the products of agricultural biotechnology. In the United States, that would be foolhardy and pointless—but not much more than that. What happens in this country, though, will affect the work of scientists everywhere. This kind of crop will be necessary to help feed the ten billion people that will inhabit this planet by the end of the century.

I also recommend Specter’s profile of Vandana Shiva.

The EPA’s mine restrictions are of a piece with Washington’s expanded SEPA

The Wall Street Journal ran an op-ed last week about the EPA and mine permitting. Daniel McGroarty of the American Resources Policy Network writes,

The Environmental Protection Agency last week put forth new restrictions that would essentially block the Pebble Mine, a proposed multi-metal project in the Bristol Bay region of southwest Alaska. For months the EPA has argued that under the Clean Water Act it can prevent the mine before the company has even filed for a permit.

The EPA had never invoked this authority before Pebble . . . .

But anti-mine activists want the EPA to do something similar for projects in Minnesota, Wisconsin and Oregon.

What these projects have in common is that none has put forward an actual mine plan. This action would trigger a thorough mine review, as required under the National Environmental Policy Act. For more than 40 years NEPA has defined the process by which a mine plan is evaluated. Under the law, every one of the concerns raised by opponents to the Wisconsin, Minnesota and Oregon mines would be aired publicly, examined by scientists and a range of technical experts, before approval is granted or denied. Now, using Pebble Mine as precedent, anti-mining activists are urging the EPA to ignore NEPA and bar mining projects with no review necessary.

Activists also are urging the EPA to measure environmental impact in a way that makes projects seem more pernicious than they are. Current law requires an environmental-impact statement, which is an extensive assessment of a mine’s potential impact weighed against mitigating safeguards.

But anti-mining activists are pushing for a switch to “cumulative effects assessments,” which would take into account past, present and future actions in the project vicinity. Under such an approach, a mine could be vetoed because other proposed mines in the region could at some point in the future collectively contribute to deleterious environmental effects. Even the most meticulously engineered mine plan can be undone by a parade of hypothetical horribles.

This will sound familiar to readers following the decisions by agencies here in Washington to use an expanded SEPA process for certain projects. We wrote about the issue here. As we note in the policy brief, for the Gateway Pacific Terminal, EPA argued for both an expanded SEPA and NEPA process; Ecology was responsive, but the U.S. Army Corps of Engineers was not.

Crude oil loading facilities and the price of gas

The debate in Washington over transporting oil by railroad could have big impacts on other states. In the course of writing about the expanded SEPA process last month, we mentioned the Tesoro Savage Petroleum proposed crude oil loading facility at the Port of Vancouver. A Reuters story today puts the delays in permitting for this project in national perspective:

While the proposed Keystone XL pipeline is the marquee battle between pump prices and environmentalist concerns, crude-by-rail is a growing issue and has a more immediate effect on domestic consumers and refiners. The cost of delays from the crude-by-oil fight may be steepest in California, an isolated market increasingly dependent on foreign oil.

Tesoro’s project aims by mid-2015 to start sending up to 360,000 barrels per day of North American crude, including North Dakota Bakken and Canadian heavy, to the rail port, where all or most of the oil would ship out on tankers and barges to California refineries.

That oil costs up to 25 percent less than some foreign barrels, and the Tesoro project could replace about a fifth of California’s crude — around 40 percent of its imports.

Other states have slashed costs by using railroads to tap cheap crudes from the booming fields of North Dakota and Canada, but California refineries still depend on arguably the country’s most expensive crude, because there are few pipelines connecting it to the rest of the country.

California’s consumers (paying $4.09 per gallon compared to $3.47 in Texas) are bearing the brunt of their state’s permitting and regulatory process, which has kept out projects like Tesoro’s:

Tesoro’s rail-to-ship option is, in essence, a continental-scale workaround to sending crude directly to California. Obtaining permits to build crude offloading facilities in the Golden State has proven tough for companies including Alon USA Energy and Valero Energy Corp, which in March withdrew an application for a project in the Wilmington area of Los Angeles.

Kinder Morgan Energy Partners started moving crude in February to a former ethanol rail terminal in Richmond, California. Planned volumes are a fraction of what Tesoro aims to bring through Washington, but in any case opponents are suing to halt operations pending an environmental review.

Here in Washington,

The project has been delayed about six months to mid-2015 as Tesoro awaits word from the state on what the company needs to provide for an environmental impact study. That delay pushed costs to a range of $150 million to $190 million from $100 million. . . .

In the meantime, much of the Tesoro project is ready to go. The Vancouver port beefed up its rail infrastructure, including a huge loop track now earmarked for Tesoro, in the mid-2000s to handle mile-long trains carrying grains and iron ore, said Todd Coleman, the port’s executive director.

Tesoro said the project will bring about 120 permanent jobs.

New brief: A Newly Expanded SEPA Threatens Washington’s Competitiveness

As part of the State Environmental Policy Act (SEPA), the Department of Ecology and other agencies have recently used expanded scopes of review for certain proposals. Under these scopes, the agencies are considering impacts that go beyond state borders, to an unprecedented extent.

In a new policy brief, we look at what is happening, outline how the expanded scope for these particular projects is already having ripple effects, and describe the implications for Washington’s competitiveness.

Business and labor react to proposed federal climate change regs: lost jobs, higher costs, more uncertainty

Yesterday’s announcement of new climate change regulations guarantees another marathon debate over the costs and benefits of dramatically reducing our reliance on coal. Unsurprisingly, as the New York Times reports, our state’s governor is on board.

Gov. Jay Inslee of Washington, a liberal who, like Mr. Obama, hopes to make climate policy a signature of his tenure, cheered the rule.

AWB president Kris Johnson takes a sharper look at it.

The proposed changes would devastate the manufacturing industry, one of the country’s leading providers of family-wage jobs, at a time we most need skilled manufacturing workers. And manufacturing is the industry that has been leading us out of the recession. Today’s announcement puts these jobs at risk by creating, in effect, an energy crisis.

Johnson also notes the challenges posed by the EPA’s decision to devolve the regulatory authority to the states.

Walter Russell Mead describes it this way:

Under the new rules, states will be allowed to decide how they accomplish these cuts, but if this rule goes into effect, they’ll need to manage those reductions somehow—with renewables, coal plant scrubbers, nuclear, or shale gas—so that the average amount of carbon power plants emit per megawatt hour generated is 30 percent less in 2030 than it was in 2005.

Mark Muro of The Brookings Institution applauds the state-focused effort, as does Barry Rabe, also with Brookings.

But the Wall Street Journal editorial page isn’t so sure.

Now the agency is taking a “systems-based approach” that usurps state responsibilities in order to move electricity production away first from coal and later natural gas.

The EPA is claiming states can choose whatever methods they like to meet the carbon targets, from shuttering plants to installing more green sources like wind and solar. But beware of the Obama EPA bearing gifts. The agency recently rejected state plans to reduce regional haze before they are even formally proposed and revoked permits it had previously approved.

The cuts and costs vary across state lines, often dramatically. Back to the New York Times story,

The rule calls on a coal-dependent state like Kentucky to cut its plant emissions rate by 19 percent and one like West Virginia by 21 percent, according to an analysis by the Georgetown University Climate Center.

By comparison, the plan calls on Washington State, which has just one coal-fired power plant, and relies on hydroelectric power, to cut its emissions rate 84 percent.

The political faultlines are clear.

Largely welcomed by environmentalists, the plan generated a torrent of criticism from industry, coal-state lawmakers from both parties and Republican leaders who called it a job-killer that would raise utility costs.

Somehow the Times missed significant trade union opposition to the rule. From the United MIne Workers:

Our initial analysis indicates that there will be a loss of 75,000 direct coal generation jobs in the United States by 2020. Those are jobs primarily in coal mines, power plants, and railroads. By 2035, those job losses will more than double to 152,000. That amounts to about a 50 percent cut in these well-paying, highly skilled jobs. When a U.S. government economic multiplier used to calculate the impact of job losses is applied to the entire economy, we estimate that the total impact will be about 485,000 permanent jobs lost.

The U.S. Chamber of Commerce published an analysis of the potential economic effects. There’s a lot in the report, but here’s a nugget to consider.

This Energy Institute report provides clear evidence that, even with implementation features designed to keep compliance costs low, regulating CO2emissions at the thousands of existing fossil fuel-fired electricity generating plants in the United States under the CAA [Clean Air Act] leads to nearly a half trillion dollars in total compliance expense, peak GDP losses over $100 billion, hundreds of thousands of lost jobs, higher electricity costs for consumers and businesses, and more than $200 on average every year in lower disposable income for families already struggling with a weak economy.

The NYT notes that the state-by-state scheme resembles the approach taken with the Affordable Care Act, “often with rocky results.” I expect the run up to implementation to be similarly contentious.