Closure on coal will be a costly affair
Date July 31, 2015 - 11:45PM
Richard Denniss
The Australia Institute executive director
The Isaac Plains coal mine in Bowen Basin, central Queensland, sold this week for $1. Photo: Sze Kai Chen
Like mobile phones, you can now pick a coal mine up for $1. Literally $1. The Isaac Plains coal mine in Queensland's Bowen Basin changed hands this week for less than the cost of a cup of coffee.
But, like a cheap mobile phone, cheap coal mines come with a sting in the tail. While cheap phones are locked into long contracts with expensive calls, cheap coal mines come with the liability to tidy up the enormous mess that comes with digging enormous holes, shifting millions of tonnes of dirt and extracting tens of millions of tonnes of coal.
The challenges facing the coal mining industry are becoming too clear to all except our senior politicians. China and India simply aren't buying as much coal as the Australian forecasters and modellers said they would. The cost of renewable energy is falling much faster than the forecasters and modellers said it would. Household-scale battery storage wasn't meant to be affordable for another 20 years. Can you see the pattern?
Industries that can't see the writing on the wall go broke all the time. Kodak didn't think digital cameras would take off, and Nokia thought the whole "smart phone" thing was a niche market. While modern governments and business lobby groups loudly agree that "business needs certainty", in reality, capitalism is based on the premise that there is no certainty in business. Investors take risks and the good ones make returns.
While the multibillion-dollar losses of the coal mining companies are of obvious concern to their shareholders, in a well-functioning market they should be of little concern to Australian taxpayers. The fact that someone who bought a company for $860 million four years ago is willing to sell it for $1 today is their problem not ours, right? Wrong.
The mining industry, domestically and internationally, has a long history of walking away from unprofitable mines and leaving the mess for others to clean up. Just this month it was reported that WA taxpayers might have to pick up the $30 million tab for the Ellendale diamond mine, which went into administration. Just this week a coal mine poured pollution into the world heritage listed HaLong Bay in Vietnam. And, of course, the Hazelwood mine fire that devastated the town of Morwell wouldn't have happened if the mine owner had delivered on commitments to progressively remediate the site.
Unfortunately, despite the mining industry's track record, Australian taxpayers have made huge bets on the future prosperity of mining companies and their willingness to tidy up after themselves. Our political representatives have bet billions of dollars that the companies who mine our resources will tidy up the mess they make before they leave the industry. Rather than make them pay a bond that is sufficient to cover the full cost of "site remediation" up front, successive Australian governments have been willing to bet that the companies would act as "good corporate citizens". What could go wrong?
No real estate agent would waive a rental bond on the basis that tenants had promised to do a good job of cleaning up on the way out. Ask a year 12 student trying to book a hotel for schoolies week how much mustard those promises cut in the private sector. Only a government would believe that someone who paid $1 for a coal mine is committed to the long-run cost of remediating a mine site.
Of course it's not just coal mines that require enormous clean-ups at the end of their, fast approaching, economic life. While wind turbines are notoriously "ugly" and "dirty" affairs, it's important to remember that even coal-fired power stations cause land, air and water pollution. Remediating power stations will require the disposal of huge amounts of toxic soil and the careful disposal of large amounts of asbestos. It will not be cheap.
The world is moving rapidly towards renewable energy sources, and the hostility of the Abbott government to that shift is as relevant to global evolution of the energy market as Kodak's hostility to digital cameras was. But while declaring that wind turbines are ugly and coal is good for humanity might help the current government hang on to its voter base, it does nothing to help the Australian economy prepare for the transitions ahead.
While the government no doubt hopes the next election will be a "referendum on the carbon tax", the result of any such vote will be precisely irrelevant to the forces shaping the world's demand for energy. Whether we have a carbon price, and what we call it, will have no impact on China's demand for coal and no impact on the price of solar panels.
Australian politicians have several options. They can lead a debate about the complex and uncertain changes that are sweeping the world energy markets at the moment, they can stick their heads in the sand, or they can have another giant debate about whether an emissions trading scheme is a tax or not. Only the first option is of any real value.
While prime ministers come and go, poles and wires last for generations. In the past 10 years we spent billions of dollars on poles and wires we didn't need because the same forecasters who said China would never stop buying our coal predicted that rising electricity prices would have no impact on the demand for electricity. It's hard to believe such an obvious error could cost us so much. But it did.
We can never get the money back for the poles and wires we didn't need but we haven't yet lost the money we will lose when the mining companies walk away from their obligations to tidy up after themselves. We can fix that problem before it bites us, if we want to. Anyone willing to lift their head out of the sand, and above the fight over carbon pricing, can see what's on the horizon.
Hundreds of thousands of jobs will be created in the coming decade in energy efficiency, renewable energy construction, redesigning and rebuilding our electricity grid and in decommissioning old coal mines and power stations. The question isn't whether it will happen, but how much it will cost and who will pay for it. The sooner we admit what is happening, the less money we will waste heading in the wrong direction.
Whether it "believes" in climate change or not, surely the Abbott government believes what the market is saying about the value of coal and the cost of renewable energy. If coal mines are selling for $1, then, whether you think it is good for humanity or not, coal clearly isn't a good long-run investment.
Richard Denniss is chief economist at The Australia Institute.
Read more: http://www.canberratimes.com.au/com...tly-affair-20150731-gioigz.html#ixzz3hWcy3Pys
