Australia's headlong expansion of coal mining for export carries substantial investment risks of stranding assets says a new report from Oxford University. Previous warnings regarding potential risks of a carbon bubble have been made by Carbon Tracker, PriceWaterhouseCoopers (PwC) and International Energy Agency (IEA).
During December 2013 the Abbott Federal Government gave approval for massive coal port expansion in Queensland at Abbot Point and expansion of coal seam gas (CSG) facilities in Gladstone. It also approved the third coal mine to operate in the Galilee basin 450km from the coast. Environmental approval processes were also passed to the authority of State Governments to streamline further mining approvals, as well as Federal funding immediately cut to Environmental Defenders Offices in each state.
In the conclusion of the report on the risk of stranded assets, Ben Caldecott, James Tilbury and Yuge Ma state:
"It is clear that China’s coal demand patterns are changing as a result of environment-related factors and consequently less coal will be consumed than is currently expected by many owners and operators of coal assets. Given China’s growing role as the price setter in global and regional coal markets; falling demand will, all things being equal, reduce coal prices. This would result in coal assets under development becoming stranded, or operating mines only covering their marginal costs and subsequently failing to provide a sufficient return on investment."
Coal and Carbon bubble asset risks and China
The decisions to expand coal production ignore the long term climate impacts of the coal and gas being exported and burnt producing carbon emissions. The approval process also fails to take into account the increasing investment risks of substantial fossil fuel development at a time when scientists say most unexploited fossil fuels need to stay in the ground to avoid dangerous levels of climate change exceeding of 2 degrees Celsius as agreed at the 2009 Copenhagen climate talks.
The new report - Stranded Down Under? Environment-related factors changing China’s demand for coal and what this means for Australian coal assets - was published on 16th December. Authored by Ben Caldecott, James Tilbury and Yuge Ma from the Smith School of Enterprise and the Environment at Oxford University, it provides a detailed warning that Australian coal infrastructure assets face a substantial risk of becoming stranded.
China has been a particularly good customer over the last decade for Australia. Exports to China made up just 3% of Australian thermal coal exports in 2007 but grew to 18% by 2012 spurring industrial development and production in China and helping the Australian economy through the 2008 Global Financial Crisis, in addition to the stimulatory spending programs of the Rudd Labor Government.
The coal export trade provides substantial royalties to State Governments in Australia, a major source of revenue, but also a major stranded asset risk. The authors recommend that government investment risk should be reduced "by limiting the use of public funds that help finance coal-related infrastructure, such as ports and railways."
Australian state governments would also be adversely affected financially by projects being abandoned or mothballed – less production will reduce royalty payments. For example, the coal mining industry paid AU$3.1 billion in royalties to the Queensland sate government and AU$1.3 billion to the New South Wales government in 2008-09.
In Australia royalties for the extraction of resources are paid to the state governments, although revenues from the carbon price are collected by the national government. The Queensland government in particular, notionally has much to lose from the mega-mines in the Galilee not going ahead. It would be sensible for policymakers to minimise exposure by diversifying their tax base.
There are currently 89 coal projects planned for Australia, with a total potential capacity of 550 million tonnes (Mt) per year, more than doubling the current production capacity of about 430 Mt in 2011. Most of this increase is expected to come from 13 mines each of which is expected to have an annual output of 10 Mt or more.
China now accounts for half the world’s coal consumption, with 30 per cent of this being imports from Australia. China is now an important price setter for coal globally.
But China's demand for coal is changing due to climate change pressures and substantial air pollution issues driving Chinese policy. Already we are seeing increasing environmental regulation due to the health impacts of pollution due to coal burning; the rapid expansion and rollout of renewable energy technologies and improvements in energy efficiency, and the implementation in 2013 of several trial greenhouse gas Emission Trading schemes covering 250 million people to drive reduction in carbon emissions. Coal fired power is also a major water user, with water scarcity and rationing an increasing issue in Government policy.
High air pollution impact on public health
Greenpeace have recently highlighted that coal plant emissions and pollution impacts on public health is increasingly driving reduction in coal-fired power, along with energy efficiency. Greenpeace put together this interactive map of China coal plant emissions by health impact:
Interactive: China's quarter of a million premature deaths from coal plant emissions in 2011. Read more... (Source: Greenpeace EnergyDesk)
According to Greenpeace analysis coal plants contributed to high emission levels in 2011 that contributed to an estimated quarter of a million premature deaths and reduction in life expectancy. Pollution levels continue to be a major public health problem.
Level of PM2.5 pollutants climbed since around midnight, reaching 382.1 mg per cubic meter at 11 a.m in Shanghai http://t.co/iePTJIyckt
— Clean Air Network (@cleanairnetwork) December 26, 2013
Coal related pollution and social unrest in China
The level of air pollution is also driving social unrest in China, another driver for Government policy action on reducing coal consumption in it's energy sector.
"Environmental concern in China has grown rapidly and is now the leading cause of social unrest. The number of environmental protests increased on average by 29% a year from 1996 to 2011. Between 2010 and 2011 the number of environmental protests jumped by 120%. One of the driving forces behind this increase in activism is the rise of social media. Platforms like Weibo (China’s equivalent of Twitter) have helped unite people around common grievances and to mobilise action."
Capacity for Growth in renewables in China underestimated
The growth in renewables in energy generation in China has been phenomenal. But like in many Western Countries the capacity for solar and wind to supplant traditional fossil fuel electricity generation has been greatly underestimated. The report summarises this threat to traditional coal fired electricity generation:
China is a major producer of low carbon electricity from wind, solar, hydro and nuclear. In 2012 China invested US$67 billion in renewable energy, more than three times the level of Germany, and produced 714TWh of hydroelectricity in 2010, more than any other country, representing 18% of its total generation. China has roughly doubled its wind capacity every year since 2005 to become the second largest wind energy producer in 2011, and is the world’s largest low-cost producer of solar panels. As of mid-2012 China had plans to install a further 33 GW of nuclear power capacity, half of global nuclear power installation proposals.
Despite these successes, low carbon sources make up a small proportion of
China’s energy mix, with 6.5% coming from hydro, 0.8% from nuclear, 0.7%
from wind and 0.02% from solar in 2012. This means there is significant space for further growth. Experience in other markets shows that the deployment of renewables, particularly onshore wind and decentralised solar, can scale up remarkably quickly once policies, a critical mass of project developers and market access are in place. Analysts have consistently underestimated the scale and pace of renewables deployment in different markets and the same has been true in China.
The report highlights many transmission inefficiencies and other obstacles in China, but as these are ironed out, and reneweable energy plans are realised at the cost of coal fired power, coal consumption is likely to fall from 70% of the electricity mix to 63% by 2020.
"This would reduce China’s total national coal consumption by approximately 5% by 2020. The resultant decrease in coal imports would be modest in the short term but potentially significant in the medium to long term as more coal is displaced. China’s policymakers are also likely to prioritise domestic producers of coal, which would result in exporters being disproportionately affected by a fall in demand."
Growing Community call for banks to divest from Fossil Fuels
Reducing coal consumption will not happen overnight, but China has already indicated it is capping use of coal and transitioning away from coal burning both for climate change and to reduce the negative pollution effects on public health.
Increasingly, the funding for fossil fuel development is coming under public scrutiny with calls from a growing Divestment movement for Australia's four big banks: the Commonwealth Bank, ANZ, Westpac, and National Australia Bank, to withdraw from their substantial loan investment portfolios in coal and CSG developments. These community campaigns are have a growing consumer impact on the Banking business sector.
In November 2013 One hundred customers abandoned Commonwealth Bank in a fossil fuel protest. Commonwealth Bank has loaned over $1.5 billion to coal and gas export ports along Australia’s East Coast since 2008 – many of the projects located inside the Great Barrier Reef World Heritage Area.
A huge banner was unveiled at the Westpac AGM on 13 December in Melbourne addressed to CEO Gail Kelly calling for Westpac to divest from the fossil fuel sector for the sake of protecting the climate. It was accompanied by an open letter signed by 3,000 Australians. Since January 2008, Westpac has loaned over $1.1 billion to coal and gas export projects, many of them inside the Great Barrier Reef World Heritage Area.
On December 18 it was the ANZ Bank AGM in Brisbane turn, with questions asked by protestors on investment risk. ANZ Bank is a prominent funder of Whitehaven Corporation Maules Creek Coal mine that will destroy substantial tracts of the Leard state Forest.
Over the past five years, ANZ has loaned over $2.3 billion to new coal and gas export projects along the eastern seaboard, over a billion of which funded coal and gas export projects in the Great Barrier Reef World Heritage Area.
Nearly a year ago the ANZ Bank and Whitehaven were subject to a hoax letter over the investment. Author of the hoax letter Jonathan Moylan is facing up to ten years in prison and a $765,000 fine for highlighting ANZ’s role in funding the Whitehaven open cut coal mine in north-west NSW. His case is set to be heard in the NSW Supreme Court in June 2014.
Conflicts between Coal mining and agriculture
Expansion of coal mining is already causing friction over use and alienation of good farming land and sites of high biodiversity value.
In north western NSW the Leard Forest is threatened by the Whitehaven Maules Creek coal mine, with continuing opposition to the mine from the local community.
In central Queensland the Bimblebox Nature refuge is threatened by Clive Palmer's Waratah Coal company China First proposed coal mine.
Health impacts of coal dust on small rural communities and those along coal routes have also been raised.
Impacts on water tables and quality of water is also a major concern, especially as many of the proposed coal mines are in recharge areas of the Great Artesian basin with many communities and agricultural production dependent on aquifer bore water.
The legislative framework is overhelmingly in favour of mining exploration and development with land owners having few rights. Once mines are approved, communities are literaly bulldozed into compliance. But there have been a few exceptions where strong close knit communities have fought and successfully resisted mining proposals. The Lock the Gate Alliance has achieved a measure of success as indicated by this 35 minute film on youtube - Undermining Australia - Coal vs Communities.
Coal and CSG port expansion dredging risks damage to Great Barrier Reef
On 10th December Australia's Environment Minister Greg Hunt approved the Abbot Point and Curtis Island port infrastructure projects. These are massive coal and LNG terminal developments which will have a substantial impact on the Great Barrier Reef Marine Park.
While environmental conditions were stipulated, environmentalists were deeply concerned these conditions are grossly insufficient to stop direct and indirect damage to the World Heritage listed Great Barrier reef.
Senator Larissa Waters and Senator Christine Milne from the Greens were highly critical of the decision, here talking on Sky News about the Abbott Point development.
The Great Barrier Reef Marine Park Authority has the final authority in issuing a dumping permit for dredge spoil in the marine park. It has currently delayed this decision for a month until late January.
We have a one month delay from GBRMPA - Well done everybody! pic.twitter.com/TNp1NGHfGt
— Fight for the Reef (@fightforthereef) December 20, 2013
Clive Palmer's China First Coal Mine Approved
On the 20th December billionaire Mining Magnate and now Federal MP Clive Palmer had his Waratah Coal Company latest project approved by the Federal Government - the China First coal mine in the Galilee basin.
The approval will be a source of coal allowing Abbot Point to become the largest export coal port in the world, eclipsing the Port of Newcastle in New South Wales. The project involves building a 450km rail line to transport the coal to Abbot Point on the coast. It also involves destruction of most of the Bimblebox nature Refuge. Although the Environment minister has stipulated environmental offsets must be provided, this is a poor substitute when endangered species and a biodiverse ecosystem is concerned, according to a media statement by the Refuge administrators.
Central Queensland Coordinator for the Lock the Gate Alliance, Ellie Smith said in a media release:
“This mine will have unacceptable impacts on groundwater and the communities that depend on it and will cause the destruction of a privately owned conservation area, setting a dangerous and destructive precedent for the future. One has to ask what value landholders should put on a signed Conservation Agreement when it can be totally disregarded by both the Queensland and Federal Governments”
Tom Crothers, a former General Manager for Water Allocation and Planning in the Department of Environment and Resource Management, highlighted the impact on groundwater use by the cumulative use of the 3 mining projects already approved in the Galilee Basin:
“The three mines now approved by the State and Federal Governments are projected to extract 367 billion litres of water from the Galilee Basin aquifers over their mine life. This is equivalent to 190 years of livestock and domestic water supplies for the pastoral properties in the proposed mine lease areas of the Basin.”
“It’s clear that Minister Hunt has given scant consideration to the cumulative take of groundwater by these three mines on the future access to water by the local landholders” he said.
Greens Queensland Senator Larissa Waters said in a media release “Mr Palmer’s mine will rip up the Bimblebox Nature Refuge, an 8000 hectare patch of remnant native woodland, which provides scarce habitat for native wildlife, including the endangered Black Throated Finch. The condition attached to offset Bimblebox with another area is ridiculous – you can’t offset the loss of the last remaining significant woodland in the Galilee Basin."
- Ben Caldecott, James Tilbury, Yuge Ma, Smith School of Enterprise and the Environment, 16 December 2013 - Stranded Down Under? Environment-related Factors Changing China's Demand for Coal and What this Means for Australian Coal Assets (PDF)
- Greenpeace Energy Desk, 12 December 2013, Interactive Map: Health impact of China's coal plants mapped
- Media release from Greg Hunt, Minister for the Environment, 10 December, 2013 - Abbot Point and Curtis Island projects approved
- Lock the Gate Alliance media release 20 December 2013 - ALLIANCE SLAMS “CHINA FIRST” MINE DECISION