Reliance on coal could scuttle us

Age
Friday 18/7/2008 Page: 13

It would be shortsighted of Australia to rely on coal and not other energy sources.

THE Rudd Government's green paper on a "carbon pollution reduction scheme", and the methods to achieve this reduction, have some strongly innovative elements. But there is a continued emphasis on investment in offsets and abatement from large-scale carbon capture projects to significantly extend the life of our coal industry. This poses three huge risks to the Australian economy.

Are we sure that we want our children to shoulder them? The first big risk is that carbon capture and storage isn't proven. Experts believe it may take until 2015 or later to prove the technology, if then. The second big risk is that it may not prove cost effective. Evidence is accumulating that carbon capture and storage may prove uneconomic because renewables such as solar, geothermal power and wind are falling in price very rapidly.

But the biggest argument of all for caution - yet hardly ever spoken - is that there simply may not be enough coal to go around. This could lead to global shortages, price spikes, economic disruption and a rush to other energy sources - meaning billions of dollars of stranded investments. Incredibly for an energy resource that the world depends on, global coal statistics are shockingly poor. Take China.

Since 1992, the nation has mined roughly 20% of its reported reserves. Yet, China hasn't changed its reported reserve figures since that year. The United States and Australia have reasonably credible reserves, but other nations with large reported coal assets are Russia, India and South Africa. How reliable are their figures? Put bluntly, neither the world nor Australia should commit to carbon capture and storage until there is a better global accounting of the underlying energy resource.

This matters. The world, led by China, is rapidly consuming coal. China is now a net importer of coal despite being the world's largest coal producer. What would happen to all those new Chinese coal-fired power stations (now opening at the rate of one a week) if domestic reserves turn out to be inadequate to meet demand? One outcome could be a scramble for coal resources at any price. That, in turn, could mean a queue of coal ships off Newcastle in NSW of 100 ships, or maybe 200 instead of 50 to 60 now.

It could mean blackouts and brownouts in China with huge implications for global supply chains. If an energy crunch induced by a coal shortage happened in China, there could be a global contractionary contagion effect, similar to that which the world is seeing as a result of American subprime mortgages, except potentially much bigger.

One response to such a risk would be to bet on the "Lucky Country" scenario, in which Australia would be blissfully unaffected by this international energy turmoil, because it has large coal supplies relative to domestic consumption. That may be true. But Australia operates in a global market. If bad global coal reserve figures lead to inadequate future capacity planning, which then leads to global shortages, resultant price spikes may bring short-teen windfall gains in Australia's terms of trade.

But it will do so at the risk of worsening global economic short term pain and would probably drive coal prices so high that other countries - unable to source adequate coal at any price - turn to quick-to-construct renewable energy resources such as wind, wave, solar and geothermal power. And we are left behind.

In the end, the global economy will adapt. The question is how fast, how smartly, and with how much pain. It would be far smarter to spend the next few years expanding Australia's real, proven and commercially operating renewable energy sources such as wind, solar and geothermal power.

This is a key element that the Government and Ross Garnaut must be thinking harder about driving forward. The time to think about carbon capture and storage will be when the underlying reserve is proven and credible and certain to be around for long enough to justify the investment. That certainty isn't there right now.

Barry Brook is Sir Hubert Wilkins professor of climate change and director of the Research Institute for Climate Change and Sustainability at the University of Adelaide.