This week’s New South Wales budget laid bare a critical moral and economic challenge facing the state’s economy.
Over the last few years, the cost of climate-fueled disasters has skyrocketed. Since 2019-20, the NSW and Australian Governments have spent an average of $1.6 billion per year on disaster relief alone, up by over 1,000% from the six years prior. In response, the state government has allocated $4.2 billion for disaster recovery over the next four years.
On one hand, this is a positive sign that flooded out families to the North, and drought-stricken farmers to the South, will get the relief they deserve soon. But it’s also a clear sign that the increasing cost of climate in-action has well and truly transitioned to become a hip-pocket issue not just for our farmers, but those in the “big smoke” as well.
But just when you’d want the rest of the economy to be buzzing, the “sharp fall in thermal coal prices” has left the state with $453 million less in expected royalties over the past year, amidst a decline that appears to be a structural shift rather than a temporary blip.
For a state that leaned heavily on coal royalties to prop up its budget during the commodity boom and COVID, it would be natural to hope that these declines are nothing more than just accounting quirks. But most signals point to a structural shift that demands urgent attention.
Last year, coal exports were looking pretty good, and “rose sharply” due to a surge in demand from China. However, following an unusually warm winter and big increases in domestic coal stockpiles, that demand spike dwindled quickly.
In fact, Chinese customs reported a 20 percent year-on-year decline in coal imports in April 2025. This drop hit Indonesia’s coal miners far harder than it hit our own exports. But with the country’s steel industry projecting production declines, and renewable energy capacity records continuing to fall, it looks likely that China may remain a volatile coal importer at best. They’ve even started exporting a few million tonnes this year across Asia.
At the same time, the world’s second biggest coal market, India, is reducing its import dependence, even while it’s burning more coal. India’s coal-fired power generation grew by 3% in the last year but coal imports fell by nearly 8%. This arguably saved the country close to $12 billion in foreign exchange losses, as nationalist policy and domestic production increases will likely quiet those who remain hopeful that India might be able to provide a forward demand bump for NSW exporters.
That really only leaves Japan, our most consistent thermal coal buyer. Japan hasn’t really increased its demand for the last decade, and its short term import projections look likely to decline with more Nuclear coming online. Similarly, South Korea has flagged that its coal appetite may also decline in the near future.
These market headwinds led the Office of the Chief Economist to project a 38% decline in Australia’s thermal coal export prices by 2030. That would cut close to $12 billion in annual export revenue over the next five years, while leaving export volumes effectively unchanged. That means we could be getting far less return per tonne of coal export, as its climate impacts only continue to worsen.
While the budget offers some hope that exchange rate shifts might offset falling revenues, few expect last year’s drop to be just a short-term blip. Even with the current geopolitical crisis in the Middle East likely boosting oil and gas prices, last year’s decline looks more like a preview of a sectoral reality NSW must confront, and soon.
Going forward, the rest of the state’s budget looks quite positive. Real wages are up, employment remains high and the state’s debt reductions are projected to save around $400 million per year on interest payments alone, leading to budget surpluses projected in both 2027-28 and 2028-29.
And let’s put coal royalties in context. Last year, the state earned about as much from coal royalties as it did in gambling or motor vehicle weight taxes, and both of these are increasing going forward. The coal royalties are an important part of the budget, but they wouldn’t even cover half the state’s interest costs each year.
So while it might not be catastrophic, it’s still a shift the government will have to manage going forward, as will the challenge of ensuring a Just transition for the coal mining sector.
The proposed Future Jobs and Investment Authority is also a critical step towards supporting communities dependent on coal mining, and transitioning to new industries. But achieving a meaningful transition for the state’s 25,000 odd coal miners and their families is going to be a massive effort that will need significant private-sector buy-in, and serious financial contributions from the companies who’ve long profited from mining as well.
As Hunter Renewal’s Steve Phillips summed it up this week, “Two of the biggest mines in the Hunter will close in just five years, and many more closures will follow. Our region needs new industries urgently.”This leaves the state in a critically challenging position. The cost of transition grows with each passing year, and granting coal mine extensions only kicks a heavily loaded can further down an increasingly unstable road.
While the state’s biggest export earner looks down the barrel of structural price declines, it remains our biggest contributor to climate-fuelled disasters, and this impact is only compounding.
In his Foreword to yesterday’s budget, Treasurer Daniel Mookhey stated this government is “thinking” and “planning for the long term.” I want to believe that, and budget inputs like the Future Jobs and Investment Authority signal that they are.
But I’m not sure they’ve fully considered the bigger questions we need to ask: What if coal royalties decline even further? And when might the climate costs of this industry become simply too great for anyone to bear?
