Queensland Resources Council (QRC) Chief Executive Michael Roche delivered a major speech to a coal and energy conference in Brisbane this week. Among the highlights are a record year for coal exports from Queensland according to preliminary figures, and a surprise increase in resource sector employment in the 12 months to May 2009 (Australian Bureau of Statistics (ABS)).
Commentary is also directed at the global energy outlook, the increasing reliance on coal for electricity and the implications for the Queensland coal and electricity generation industries of the proposed Carbon Pollution Reduction Scheme.
Roche: “According to preliminary figures the QRC has compiled, Queensland broke its previous record for coal exports in 2008-09. Shipments from Abbott Point, Brisbane, Dalrymple Bay, Gladstone and Hay Point terminals totalled a bit over 159 Mt to the end of the financial year. That’s around 7 Mt above the previous year, or 5.8 Mt higher than the previous best in 06-07. In dollar terms, we’re still waiting on the full financial year figures, but looking at the first three quarters of 2008-09 year, the value of Queensland’s coal exports was A$33 billion. This is more than double the previous year’s total value of A$16.4 billion.
“Record contract prices in 2008 obviously have a lot to do with that dollar value result but there are a few other points worth making. The capacity of Queensland’s ports has improved significantly with the completion of terminal expansions at Gladstone, Dalrymple Bay and Abbott Point.
“Some could argue that this is an example of bad timing, but it was always the coal industry’s expectation that increased volume would replace the unsustainably high contract prices that eventuated in the first quarter of 2008. The industry is back on its trend line of long-term growth, illustrated most effectively by the state government’s own budget forecast for royalties.”
On mining employment in Queensland Roche said that “the latest batch of employment figures for the Queensland resources sector, issued by the ABS shows that coal industry employment in Queensland has been rising steadily over the past 12 months. According to the ABS, the number of people employed by the coal industry has risen from 13,800 in May 2008 to 17,600 in May 2009. That’s an extraordinary outcome in light of announced losses of more than 3,000 mostly contractor positions since September last year. That mention of mostly contractor positions probably lays a clearer picture of what’s been happening in Queensland since the onset of the GFC.
“Overall, the ABS says resource sector employment in Queensland has grown by almost 10,000 positions over the past 12 months. In Western Australia, the ABS says around 20,000 jobs have been lost over the same period. At this time, there are almost as many people employed by the resources sector in Queensland as in Western Australia.
Discussing the future of energy and where coal comes into this, Roche said: “The world has almost 850 billion tonnes of proven coal reserves, meaning that we have about 130 years left at current rates of production. By contrast, the World Coal Institute tells us we have around 42 years of oil reserves and 60 years of gas at current production levels, not including the coal seam gas reserves still being proved up here and elsewhere. Coal reserves can be recovered in some 70 countries around the world, making it an abundant form of native energy in an era of increasing concern about energy security.
“The International Energy Agency is forecasting that over next 20 years, global electricity demand will double. More than 75% of that growth is expected to occur in developing economies as they seek to lift increasing numbers of their citizens out of poverty. With some 1.6 billion people around the world still without regular access to electricity, demand is not going to level out any time soon. Indeed, it’s instructive to observe that the people of the world without regular access to electricity are also among its poorest.
“Over the past 15 years, electricity consumption in China, Indonesia, Malaysia, South Korea and the United Arab Emirates has risen by more than 244% to support their economic growth. Bearing that in mind, what’s in store from two of the world’s most rapidly developing economies – China and India?
“Governments in India have committed to building an additional 78,000 MW of coal-fired electricity generating capacity by 2017. To give you an idea of scale, Australia’s total electricity generation capacity is around 50,000 MW.
“This pales into insignificance compared with China’s plans. By 2020, China is planning another 280,000 MW of coal-fired generating capacity. That’s five times the size of Australia’s generating fleet – in the next decade. Add to this, Vietnam’s plans to install almost 120,000 MW of coal-fired electricity generation over the next 15 years and you can see how much developing countries are embracing energy security.
“You can also contemplate the rapidly diminishing timeframe in which the greenhouse gas emissions from developing countries will surpass those of the developed world. Indeed, there’s at least one report claiming that this has happened already in the wake of the GFC’s toll on industries in developed economies.
“So how do we balance the insatiable human appetite for energy with equally compelling calls for cleaner energy production? It should be clear that we are going to need every energy source at our disposal to meet the demands of the 21st century.
“It is also just as pressing that we work together to clean up the environmental performance of our most abundant, low cost energy sources. What we are seeing – albeit slowly among the ranks of ideologues in this energy-rich country – is growing global consensus that coal-fired power generation coupled to carbon capture and storage technology is integral to the energy outlook.
“Without the development of low-emission power generation technologies across the spectrum of global fuel sources, we cannot hope to slow down, let alone contain growth in carbon emissions. Fossil fuels must hold their place alongside nuclear and renewable energy technologies to meet the energy needs of this century and the next. This is the message that the world took from last week’s G8 leaders’ meeting in Italy. This is the message also from the Intergovernmental Panel on Climate Change, former US vice president Al Gore, Sir Nicholas Stern, Professor Ross Garnaut, WWF-Australia and the Climate Institute.
“To date, around 35 Mt of liquefied carbon dioxide has been permanently stored in geological formations, primarily in the North Sea, the United States and Africa. In Australia, in a paddock outside Warrnambool in Victoria, a pilot plant has successfully stored 50,000 t of liquefied carbon dioxide in a retired oil and gas field deep below the surface.
“Oxy-firing technology is being trialled successfully at a coal-fired power plant in Germany. Here in Queensland, a similar project is under construction at CS Energy’s Callide Power Station, backed by the Australian coal industry, state and federal governments and private companies. Another post-combustion pilot project is underway involving the CSIRO and Tarong Energy. Coal gasification power plants are already operating in the United States, Spain, the Netherlands and Japan.
“The integration of this proven technology with carbon capture and storage is the next challenge. And I am pleased to note that since the election of President Obama, the race is on between Australia and the United States to commission the first next generation, commercial scale, near zero-emission coal-fired power plant.
“Importantly for Queensland, there is significant funding on the table from the coal industry, Queensland and Australian Governments to make this concept a reality. In 2006, the Australian coal industry voluntarily committed itself to raising A$1 billion over 10 years to support the development and commercialisation of low-emission power generation technologies.”
On Australia’s Carbon Pollution Reduction Scheme (CPRS): “Central Queensland communities such as Rockhampton, Mackay and Emerald are forecast to shoulder most of the economic pain arising from the Australian Government’s proposed CPRS. This is the finding of the latest economic analysis prepared for state and territory leaders by Access Economics.
“Commissioned by the State Premiers and Chief Ministers through their Council for the Australian Federation, it confirms a significant slowdown in future economic activity in the Mackay and Fitzroy statistical divisions with the imposition of a cost on carbon emissions. In fact, it was the fourth public report to make such a finding, yet has received next to no commentary from the people who commissioned it.
“The Access Economics modelling says that by 2025, anticipated employment growth in the Fitzroy region will be down 3.4% with economic output cut by 5.5%. In Mackay, employment growth will be retarded 3.3% and economic output by 4.7%. What that also means to Queensland, is that by 2020-21, taxpayers will forgo around A$1.6 billion in revenues – principally from resource sector royalties. Across Queensland, the cost of putting a price on carbon translates into 28,000 fewer jobs by 2020.
“So unless there is international agreement to follow the Australian Government’s commitment to cutting its greenhouse gas emissions, most of the jobs forgone in the Bowen Basin are likely to end up with our export coal competitors. And it flies in the face of previous global agreements and logic to expect that coal-exporting competitors such as Colombia, Indonesia and South Africa will follow Australia’s early lead in cutting domestic emissions.
“Starting July 1, 2011, the CPRS will require entities with direct emissions of 25,000 t or more of carbon a year to buy a permit for each tonne they emit. To illustrate – one particular small Queensland coal mine employing 200 people and producing 3.5 Mt/y of coal emitted around 300,000 t of ‘carbon-equivalent’ gases in 2008. These emissions were primarily fugitive gases such as methane that escapes into the air during mining, along with diesel and electricity consumption.
“There are various, mostly unreliable methods of measuring methane emissions, particularly from open pit operations, and that’s the biggest bone of contention between the coal industry and the Australian Government at this time. With the CPRS as it stands, at the end of each year the mine in question must have a permit to cover each tonne of direct emissions it produced.
“The coal mine will receive just a fraction of the transitional assistance proposed for other ‘emissions intensive, trade exposed’ industries in the form of free carbon permits. These range initially from 66 to 95% free permits, depending on the industry. Despite being eligible for assistance under the government’s own criteria, the coal industry is excluded. It’s estimated that as a result, the black coal industry in Australia will incur approximately A$15 billion in carbon permit costs out to 2021.
“Treated under the government’s own eligibility rules, the industry should be in line to claim around A$9 billion in free permit assistance over those 10 years. The government’s current alternative offer is A$750 million over five years, or the equivalent of a 4% assistance package.
“Australia’s export coal industry is ‘trade exposed’ and a ‘price taker’ in global markets. It can’t pass on increased costs to its customers. To those competitor countries that I mentioned earlier, we risk conceding the new investment and our future jobs, without any guarantee of a net reduction in global emissions.
“Under the CPRS, the current formula for the Electricity Sector Adjustment Scheme (ESAS) will provide the black coal generation fleet with a disproportionately low level of compensation. Despite estimates of a A$3 billion direct asset loss on the Queensland fleet over its remaining life, the ESAS allows for only A$100 million in assistance out of a total A$3.5 billion.
“This compares with A$2.45 billion worth of assistance likely to be provided to Victoria’s brown coal generators, which are considerably more carbon emissions-intensive than Queensland’s black coal generators. And I note recent reports that, under pressure from Premier Brumby, the Prime Minister has commissioned Morgan Stanley to take an independent look at the adequacy of the assistance to the brown coal generators.
“This apparent willingness to reward the most emissions-intensive generators sends a perverse message about the environmental outcomes the CPRS is designed to achieve.
“To our knowledge – and we are still wading through the bill proposed to be the United States equivalent of our CPRS – we cannot find an example of where industry is being asked to bear such a burden. That’s including the European emissions trading scheme.
“What we do like about the Waxman-Markey Clean Energy Bill in the US is that it highlights the need for substantial changes to the CPRS as it stands. The design of the US legislation recognises the need for a measured transition to a lower emissions economy. The proposed US cap and trade scheme will auction only 15-18% of permits for the first decade of the scheme.
“In contrast, the CPRS will auction 70-75% of its permits from day one. The US scheme will not auction 70% of its permits until 2030. Under the European Union’s scheme, firms will not have to buy all their permits until 2027. Another important consequence of the Australian CPRS is that the size of up-front costs in the first four years could reduce, if not largely eliminate, the ability of Australian firms to invest in low-emissions technologies.
“At its meeting on the July 2, the Council of Australian Governments formally amended the Australian Energy Market Agreement for the pass-through of carbon costs under the CPRS and the expanded Renewable Energy Target into retail prices, where those prices are regulated. If you recall the public outcry that accompanied the recent 16% price hike in electricity costs in Queensland, then I think it fair to say there will be a few politicians bracing themselves for pass-through of carbon costs.”
