Washington Petrochemical Plant Subsidies Would Violate Federal ‘Double Dipping’ Rules Say Environmental Groups

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Kalama methanol plant site

A plan to build a natural gas–fueled petrochemical plant in Kalama, Washington, ran into a new legal hurdle last week, as a coalition of environmental groups raised new objections to its construction.

The Port of Kalama methanol plant, if built on the Columbia River between Washington and Oregon, would expand North America’s capacity to export products produced by fracked shale gas wells, and is part of a $5.2 billion plan to develop methanol plants in this corner of the Pacific Northwest. It has applied for funding from a controversial Department of Energy “Advanced Fossil Energy Projects” program — an $8.5 billion fund offering taxpayer subsidies to the fossil fuel industry.

In July, the Port of Kalama applied for an $11.5 million U.S. Department of Transportation grant to fund building a dock and improving roads to support the methanol project. On September 16, the Port applied for an additional round of subsidies for the export project, a Port Infrastructure Development Grant.

That mix quickly prompted objections from environmental organizations.

If awarded, either grant would benefit the Kalama methanol project, making it ineligible for a loan guarantee under the Advanced Fossil Energy Projects Solicitation,” Columbia Riverkeeper, the Center for Biological Diversity, and the Sierra Club wrote in a September 27 letter to the Department of Energy.

Plastics stacked for recycling
Plastic Credit: mbeoCC BY-NC-ND 2.0

If built, the methanol refinery, the environmental organizations wrote, “would consume more fracked gas than all the power plants in Washington state combined” and “would become one of the top causes of greenhouse gas pollution in Washington state.” It would be used to transform raw materials from shale wells in British Columbia, Alberta, and the Northern Rockies into methanol, a liquid alcohol (not the kind you can drink) sometimes called wood alcohol.

That methanol — 3.6 million metric tons of it — would then be exported, primarily to China, where it would be used to manufacture plastics and other products.

Amid Trade War, US Taxpayer Subsidies for Chinese Government?

The groups also questioned whether the U.S. government should offer any federal subsidies to a project linked to a foreign government.

The Port is, essentially, asking the American taxpayer to give a private company called Northwest Innovation Works [NWIW] a $11.5 million handout,” the groups wrote in a separate letter to Secretary of Transportation Elaine Chao. “That company is wholly owned by the Chinese Academy of Sciences, an agency of the Chinese government.”

Officials from NWIW disputed the letter's characterization of ownership, saying that the project involved investment from other organizations.

In an interview, NWIW also disputed the notion that the firm would be the only beneficiaries of the port's improvements, saying that improvements included a road that would be open to the public and that other port customers would be able to use the dock as well. “The claim there, I think is at best an exaggeration,” a spokesperson told DeSmog.

The Port of Kalama did not immediately respond to a request for comment.

Cover of final supplemental environmental impact statement for the Kalama methanol facility
From the cover of the final supplemental environmental impact statement for the Kalama methanol facility. Credit: Kalama SEIS

“As the draft [Department of Energy (DOE)] presentation outlines, the Chinese government is one of the principle backers of NWIW,” Pacific Standard reported in 2018, in an article about the company's $1.8 billion federal loan guarantee application. “The majority shareholder in Shanghai Bi Ke Clean Energy Technology is the Chinese Academy of Science Holdings, which the DOE presentation describes as a 'wholly owned state company.' In other words, a significant portion — if not the majority — of NWIW will be owned by the Chinese government, while the risk of financing its construction could be put on U.S. taxpayers.”

Disputes about how to characterize those facts would ultimately be decided by a court, if the environmental groups chose to bring a lawsuit objecting to funding.

Northwest Innovation Works, the Port’s partner in the methanol export proposal, is currently seeking a federal loan guarantee in that amount from the U.S. Department of Energy to fund construction of the methanol refinery,” the groups wrote. “Accordingly, the $1.8 billion would not be a ‘private’ investment in any meaningful sense because the American taxpayer would assume all of the risk.”

Throughout his time in office, President Trump has pursued an aggressive trade war against China — a trade war that has recently been faulted for driving U.S. manufacturing to a 10 year low in September.  

Without expressing a position on the wisdom of the trade war itself, the groups argued that approving the grant would create a situation where the left hand of the federal government was undoing with subsidies what the right hand had done with tariffs.

A country that cheaply sells off its natural resources, only to buy back expensive goods manufactured elsewhere using those same resources, is unlikely to create a trade surplus,” Columbia Riverkeeper senior attorney Miles Johnson wrote. “If cheap methanol from Kalama is used to manufacture plastic and other products in China, many of those relatively expensive, value-added products would find their way back to China’s primary export market: America.”

'A Carbon Bomb'

The impacts to trade would be in addition to the climate change implications of going forward with the project.

The proposed Kalama methanol refinery is a major carbon bomb that would lock Washington into decades of fossil fuel use when the state is vigorously moving in the direction of clean energy,” attorneys for EarthJustice wrote. “It is also a project designed to produce more plastic, at a time when plastic garbage is choking our oceans and shorelines.”

In April, an OPB investigation found that NWIW had suggested to investors that methanol could be used for fuel, which would alter the environmental calculus for the project. “As recently as January 2019, PowerPoint presentations shown to potential investors in the Kalama facility detailed the company’s apparent intent to burn their methanol for fuel in China,” OPB reported. “This directly contradicts what the company has been publicly emphasizing for years, that its end product would only be used for olefins, the building blocks of plastic.”

In May, Gov. Jay Inslee announced that he could no longer “in good conscience” support construction of the plant.

Climate change is at the center of a larger controversy over Department of Energy funding for fossil fuel projects at a time when the United Nations warns that the world has just 11 years left to take action to avoid catastrophic harms from a warming climate.

Funding Plastics and Petrochemicals

This summer, the U.S. House of Representatives voted to block the use of Department of Energy Title XXVI funding for projects that do not “avoid, reduce, or sequester” air pollution or greenhouse gases, via an amendment to a major appropriations bill. In September, that bill failed to advance in the Senate.

In May, a coalition of 143 environmental groups had signed onto a letter to Congress expressing opposition to Title XXVI funding for a different petrochemical project, the Appalachian Storage Hub.

A third petrochemical project, the Lake Charles Methanol plant in Lake Charles, Louisiana, was offered $2 billion in Department of Energy loan guarantees in December 2016. That $4.4 billion project, not yet under construction, would turn petcoke (a residue from refining petroleum) from the Gulf Coast to methanol and use carbon capture and sequestration.

The Lake Charles project, according to its website, would enable the production of 4.5 million barrels a year of U.S. oil, using the carbon “sequestered” from the refinery to pump more oil out of the ground. In announcing the loan, the Department of Energy said the Lake Charles project would produce roughly a third less greenhouse gases throughout its lifecycle than a “typical” methanol plant.

In a separate September 27 letter to the Department of Energy, the same environmental groups argued that the Kalama methanol project should not be eligible for the Energy Department's Title XXVI funding because it is “intended for plastics production, not energy,” and because it will not reduce greenhouse gas emissions.

Main image: Proposed site of the Kalama methanol facility. Credit: Port of Kalama
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