The long-term future of Australian coal is drying up

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Coal no more? The rise of renewables and climate action will spell an end to Australia’s coal industry.

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The Conversation

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With the recent re-approval of Adani’s Carmichael coal mine in Queensland, debate over the future of coal has reached fever pitch again. Green groups have argued that Australia should account for the climate impacts of burning coal produced in the country.

Meanwhile, the government has once again come out in support of coal to provide cheap power to developing nations.

It can be hard to make sense of the different sides. In a paper recently published in Energy Research and Social Science, I looked at the long-term future for coal in Australia. My research suggests the current coal woes are just the beginning.

Australia’s failure to reassess its commitment to coal will have serious negative consequences, not only for Australia’s economy, but for the health and well being of millions of people and the global environment.

Boom and bust

The Australian coal industry has been on an inexorable and seemingly unstoppable upswing since it first began to export coal to East Asia in the late 1950s. Between 1970 and 2010 it provided three-quarters of its coal exports by volume to Japan, South Korea, Taiwan and India.

Major Export Destinations for Australian Coal, 1970-2010 Joint Coal Board/Queensland Coal Board/Coal Services Pty Ltd.

 

It remained confident until very recently that it could expand even more quickly than it had in earlier decades as the Asian “tiger economies” continued to grow, and demand from China and India surged.

Black coal exports to Asia from Australia (excl Japan) Joint Coal Board/Qld Coal Board/Coal Services PL/Bureau of Resources & Energy Economics

By the end of 2012, at the peak of the recent mining boom, the industry had announced plans to triple or even quadruple Australian black coal production on 2010 levels by 2030. Less than three years after many of these announcements were made, however, a number of the relevant projects have become financially unviable, such as the Wiggins Island, Balaclava Island and Dudgeon Point coal terminals and the Wandoan coal mine in Queensland.

Several prominent energy analysts have warned that those that remain face the prospect of becoming stranded assets, risking tens of billions of dollars of investor capital.

The industry’s plans to triple 2010 production levels by 2030 were almost certainly premised on its awareness that global coal production would most likely peak by the end of next decade, enabling Australia to “fill the gap” in global coal supply post-2030 by exploiting its huge untapped coal resources in Queensland.

Climate change and renewables

Then a few weeks ago major multinational mining companies such as Glencore, BHP Billiton and Rio Tinto, all of which have substantial coal interests, suffered a radical reduction in share prices. This clearly reflects a growing awareness in the international financial community that the continued expansion of the Australian coal industry faces a number of structural obstacles.

These include decreased international demand, lower coal prices, carbon risk, and competition from renewables and other coal-exporting nations.

Arguably, the combined impact of these factors has not been adequately grasped by some coal industry analysts, who continue to remain cautiously optimistic about Australian coal’s long-term prospects.

There appear to be two key factors in the declining market fortunes of coal: the growing recognition that mining and burning coal is one of the main contributors to climate change, and the rapid decline in the costs of renewable energy relative to new coal and gas plants.

While the first issue is arguably the most important from an existential and equity perspective, it is the second issue which has largely focused the minds of governments, energy companies and the financial community in recent months. Perhaps unsurprisingly, altruistic concerns about the environmental and social costs of climate change continue to be trumped by economic calculations about the relative costs of different energy sources.

It is nevertheless apparent that defenders of a fossil fuel future, or business-as-usual, continue to seriously underestimate the extent to which the reliability of renewable energy technology has improved, its costs have decreased, and it has won market share in many developed and developing countries.

For example, the price at which solar power developers in India are currently pitching new projects is already cheaper than the cost of providing new coal-fired power from imported coal. The much-vaunted interest of the Indian conglomerate, the Adani Group, in exploiting the rich coal resources of the Galilee Basin, appears to be foundering. After more than a dozen major international financial institutions have declined to invest in Adani’s Carmichael coal project, it has recently begun to turn its attention to solar projects in India and Australia.

Although there have been signs over the last few years of a decline in coal demand from some of Australia’s biggest customers, the industry and its political supporters appear to have convinced themselves that Chinese and Indian demand for Australian coal would continue to grow.

This ignores the fact that there has been a significant reduction in Chinese coal imports and consumption more generally over the last few years. Recent signals from India suggest that it, too, is seriously reconsidering its role in coal-led energy growth, anticipating a 20% annual decline in coal imports, beginning this year.

Unburnable coal

If humanity wants to maintain the stable climatic conditions of the past million years of Earth’s history, the world’s leading climate scientists have told us that most of the world’s remaining coal resources will have to remain in the ground for the foreseeable future, and therefore constitute “unburnable carbon”.

The greenhouse gas emissions from burning Australia’s coal overseas have exceeded those from Australia’s domestic emissions for more than a decade now, and its remaining demonstrated black coal resources would contribute 28% of the remaining global carbon budget if burnt. There will almost certainly be growing international pressure on Australia and other fossil-fuel producing nations to extract only a small proportion of those resources over the next few decades.

In the light of these various considerations, one would imagine that the enthusiasm of Australian governments for the ongoing expansion of the Australian coal industry might be on the wane, but there are no clear signs that this is the case. My own research and that of several other Australian scholars such as Chris Riedy, Tom Biegler and the Australia Institute indicates that the combined costs to Australia of subsidies, externalities and foreign ownership outweigh the majority of the economic benefits which the coal industry supposedly provides.

Meanwhile, the major political parties continue to cling to a distorted and largely outdated notion of the industry’s contribution to Australia and the world. The governments of China and India, both of which have substantial coal resources, have clearly recognised the benefits of phasing out the use of fossil fuels in favour of renewables.

The medium- to long-term benefits of embracing such a strategy are very clear. The failure of Australia’s business and political elites to recognise the need for change will cost us dearly.

 

Source: The Conversation. Reproduced with permission.

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10 Comments
  1. Miles Harding 4 years ago

    That coal export graph got me thinking…
    It stops at 2012, hiding the downturn that has trashed coal mining viability.

    This is similar to the climate contratian’s deception of selectively reporting the weather graphs to make the climate look like it’s doing something like, say cooling for instance. Australia uses a dubious GHG forecast that are based on the 2005 emissions peak instead of the 1990 benchmark used by the rest of the world, making the county’s token GHG reduction plan look a lot better than it actually is.

    The COALition has been (and continues to be!) perfectly happy to deceive themselves with dodgy data on climate, so why not do the same with dodgy data on coal exports?

    This way they can can continue to do what they are doing, safe in the knowledge that their data says it is so.

    • john 4 years ago

      2005 was chosen because it was a high year.
      Such is life

    • Adam Lucas 4 years ago

      Miles, the reason the graph finishes at 2012 is because it’s extremely difficult to get up-to-date data from Coal Services P/L or BREE, or any other government source. I had extraordinary difficulty getting full data sets for the various categories. The National Library doesn’t hold a full set, and nor does any other public library in Australia. Coal Services has privatized the data it collects and has only been publishing every two or three years, at cost. If you can locate the more recent data and share it with us, I’d be very happy to include it. I think the issue with Labor and the Coalition is that they have a very poor grasp of the coal data and how to interpret it, not that the data itself is dodgy. There are slight variations in the data published by BREE, the ABS and Coal Services, but that is due to variations in the methodology for data collection.

      • Reality Bites 4 years ago

        Adam are you sure it’s not because the 2013 and 2014 data would show that Australian coal exports have continued to increase from around 300mtpa in 2012 by 16% to 351 mtpa in 2013 and then by another 9% to 383 mtpa in 2014. Probably also will be another increase of tonnage in 2015. Doesn’t really fit your story does it?! The data, though not Government official stats, is released by the QRC and Mineral Council. Fact is that the price reduction has motivated the miners to increase production to obtain economies of scale. Met coal in particular will probably continue to grow strongly, however there is also a growing demand for thermal with other SE Asian buyers taking up slack from Chinese. You also cannot trust the Chinese import data, they recently significantly revised the historical data because it was wrong.

        • Adam Lucas 4 years ago

          Reality Bites, it’s disingenuous of you not to use your real name when others are being honest about their identities. If you read the journal article from which this story arose, you’d see that “my story” encompasses the argument you make in the first two sentences of your response, and I have noted the ramping up of production in Australia, so your criticism is baseless. You will also see that I discuss the thermal and metallurgical coal markets for Australia in some detail, and the relative costs of production in Australia at present, versus the prices being paid by overseas buyers. As for not trusting the Chinese import data, I guess only time will tell.

          • Reality Bites 4 years ago

            Well Adam, just using my right to express an opinion, which would appear to be against 99% of people who visit this site, but alas somebody has to prod these dreamers back to reality. Disingenuous you say, want to see my hate replies?! A quick survey reveals that an awful lot of people commenting on this site are by your definition disingenuous. I might ask is it disingenuous of you to write a paper then write an article in here and only cite the facts they want to hear?

  2. Jacob 4 years ago

    Is this article talking about thermal coal or coking coal?

    • Adam Lucas 4 years ago

      It’s talking about black coal, Jacob, which is thermal and coking coal. Perhaps you should follow the link to the journal article.

  3. Ray Miller 4 years ago

    Adam, it may also be worth publishing a list of the Australian coal mines which have closed in the last couple of years and those on the list to be closed. Or a list of the number of houses for sale in the coal mining towns and cities.
    If the physics dictate we must leave all the coal in the ground, no amount of cheering on King Coal (by our governments) will cover the King’s naked body.

    The large mines still operating may be ramping up production but I would only see this as the last desperate gasp of the industry before economics and physics finally kill the remaining dinosaurs.
    With the damage done to the environment releasing Gig tons of carbon who then pays for the remediation and/or suffer the consequences? The QRC?

    • Adam Lucas 4 years ago

      Good points, Ray. I’ll talk to some of my colleagues about the coal mine list idea over the coming weeks.

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