Tuesday, 17 November 2009

Advertising aside, coal sector hasn't dug deep

Saturday 14/11/2009 Page: 2

Industry should invest in the future, not in gloomy ad campaigns.

THE coal lobby trots out some fair dinkum looking blokes in its TV commercials. But then, that's advertising. The Australian Coal Association, which hopes to blunt the Federal Government's proposed emissions trading scheme with the ad campaign, is also not being fair dinkum with the public about what the carbon pollution reduction scheme (CPRS) will do to their business, or what the industry is doing to cut greenhouse gas emissions by investing in so called clean coal technologies.

It's impossible to reconcile the ACAs doom and gloom with record planned investment in new coal mines and export infrastructure, and expectations - in ballpark terms - that exports of thermal and metallurgical coal are set to double. The ACA's claims that 9000 jobs and 16 mines will go if the CPRS gets up are contentious to say the least. Take the issue of fugitive greenhouse gas emissions from coal mines. With annual carbon dioxide emissions of 25 million tonnes from "gassy mines", and a forecast carbon price of (say) $20 a tonne, we're talking about an impost of $500 million easily covered by the assistance already being offered, of $750 million.

Turning waste coalmine methane into energy is an opportunity anyway, with companies like the unlisted methane" target="_blank">CSM Energy, which partners with AGL, specialising in just that. Citi Investment Researchgroup/Dyn/FrontPage" target="_blank">Citi Investment Researchgroup's analysts this week attacked the coal industry line. While they recognised some limited impact of the CPRS on the profitability and valuation of the coal companies, they said the scale of the debate might have superseded the scale of the evaluation impact. "We do not see CPRS as a major negative investment for the coal sector at current share prices," they said.

The ACA position on the CPRS is pure posturing, and industry executives know it even if they wont say so publicly. One industry source says Marius Kloppers, chief executive of Australia's biggest coal exporter, BHP Billiton, recently confided that he too thought the lobby group was stretching the facts. Another said simply it was pointless hoping for any endorsement for the CPRS out of the coal industry: "This is the pig shooting community we're talking about."

The real risk to the coal industry, though it may not believe it, is that the world will radically reduce coal use. Assuming some form of carbon price is brought in, shadow resources minister Ian MacFarlane told G-BIZ: "There won't be a domestic market for steaming coal in 20 years' tine." Macfarlane used to say God played a joke on Australia, putting the people on the east coast and the gas on the west coast. But with the development of Queensland's vast coal seam gas reserves, the joke is over.

Macfarlane - resources minister from 2001 to 2007 and a supporter of clean coal technology-says Australia is now "awash with gas". Coal-fired power using carbon capture and storage (CCS) will not play a significant part in Australia's future energy because, by the time it's ready, we'll have far more cost effective options. Using gas in the transition, Macfarlane thinks we'll be on to nuclear energy by then. Others think renewables could provide ample baseload power by 2030. Only the Federal Government thinks that by 2050 we'll be getting a third of our needed emissions reductions from coal-fired power with CCS. We might, if the coal industry had invested enough to make it work. But it hasn't.

Accounts filed this week showed so far, out of the ACA's so-called $1 billion Coal21 fund - the main vehicle for funding clean coal technologies - only $36.4 million has been spent since it was launched in 2006. Which is the other change Macfarlane has observed: if anything, over the past three or four years, he says CCS has "gone backWards". Queensland's Zerogen project - the biggest in Australia, with a funding commitment of up to $300 million from Coal21 (but only $6 million spent so far) - has "gone nowhere".

Oddly, Macfarlane is a supporter of the Government's $2.5 billion CCS flagships process, which hopes to part fund between two and four commercial-scale coal-fired power stations, because it will show overseas customers the technology is viable. For that reason he believes it is "very much" the role of the coalminers to invest in CCS. "[Even] $1 billion is not enough for the industry to invest, especially if the taxpayer is investing $2.5 billion," he said. The electricity sector isn't investing in CCS either.

In a sustainability briefing on Thursday, AGL conceded that just "several million dollars" had been spent on clean coal technology at its minority-owned brown-coal-fired Loy Yang power station. Fundamentally, apart from running negative advertising and lobbying campaigns, the coal industry has failed to invest in climate change abatement and is now struggling. "The industry hasn't committed enough resources at a high enough level to deal with one of the great challenges of the age," an industry source said. It's showing.