A string of projects to create some of the world’s largest coalmines in Australia risks becoming financially unviable due to falling demand from China, a new report by the University of Oxford has warned.
The study, commissioned by HSBC’s Climate Change Centre of Excellence, found that coal projects could be “stranded” by a range of Chinese measures, including environmental regulation, carbon pricing, investment in renewable energy and energy efficiency.
“These developments are not factored into the positions that most coal owners and operators are currently taking,” said Ben Caldecott, co-author of the report. “Policy makers need to wake up to these risks as well.”
China, which accounts for half of the world’s coal consumption, is seen as a key export market for a host of new coalmines, backed by the likes of billionaire magnates Clive Palmer and Gina Rinehart.
The report states that demand for coal will, “all things equal”, fall, resulting in a further drop in the price of the resource. As a result, Australian mines could become uneconomical and end up being “mothballed or abandoned”.
Such a scenario would be of concern to Palmer, who is awaiting environmental approval this week for his huge China First mine. Meanwhile, Rinehart has a stake in the Alpha Coal Project. Both projects – which would dig up enough coal to emit a combined 70m tonnes of CO2 a year at capacity – are to be situated in the Galilee Basin area in central Queensland.
Last week, the environment minister, Greg Hunt, approved three terminals to be built at the Abbot Point facility near Bowen, which will turn it into one of the world’s largest coal ports.
North Queensland Bulk Ports, which is overseeing the development, told Guardian Australia it was confident another proponent would take up one of the terminals, which was recently abandoned by BHP over cost concerns.
Environmental groups argue that not only is the huge expansion in mining disastrous for climate change and the Great Barrier Reef, it is also unnecessary due to the stuttering economics of coal mining and existing excess port capacity in Queensland.
Richard Denniss, fossil fuel analyst at the Australia Institute, added: “It really is bizarre that approval to dredge an export channel through the Great Barrier Reef would be granted before we even know if there will be any coal mines that will use it. It’s like icing a cake before it’s been cooked and when it seems increasingly unlikely anyone will even want to eat it.”
The Oxford University report states investors in a dozen upcoming Australian coal projects “should seek clarity” on the associated costs.
There could be financial pain for taxpayers too, the report warns, with state government royalties set to suffer if projects are scrapped.
“Australian state governments would also be adversely affected financially by projects being abandoned or mothballed – less production will reduce royalty payments,” it states.
“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.
“State and federal governments can also reduce the risk of their own investments becoming stranded assets by limiting the use of public funds and resources that support coal-related infrastructure, such as ports and railways.”
The Queensland government, which extols mining as a key economic benefit, has attempted to ensure planned projects go ahead by trimming the royalty rate paid by miners and working with the federal government to reduce the time spent on environmental regulations.
Nathan Fabian, chief executive of the Investor Group on Climate Change, told Guardian Australia that Australian state and federal governments had taken a short-term view on coal mining.
“It appears the government is trying to take short-term advantage of projects that may have the consequences of stranded assets later,” he said. “Private investors can work out that’s not wise and avoid these projects, but citizens through the government can’t make those decisions so there is a risk to state coffers if stranded assets have to be abandoned.”
Fabian said he expected coal assets to be stranded “by the end of the decade”, claiming that investors were already questioning the wisdom of backing fossil fuels.
“This is what happens when carbon policy works the other way around and impacts Australia in terms of trade,” he said. “The World Bank, the US government and UK government have all said they will stop investing in coal-fired generation. I think that will trickle down to Australian private companies.”
guardian.co.uk © Guardian News & Media Limited 2010