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- Why a moratorium?
- How will it work?
- Why coal?
- Why now?
- What will be the economic impact?
- Who will be affected?
- Why is Australia important?
- What about energy poverty?
- What will happen to coal prices?
- Is the coal industry dying anyway?
- What will happen to energy prices?
- What about baseload power?
- Doesn't Australia's prosperity depend on coal?
Why a moratorium?
A world that is tackling climate change is a world that needs less coal, not more. A world moving toward 100 percent renewable energy needs fewer coal mines, not more. More mines means more coal, lower coal prices and less renewable energy.
Yet the coal industry continues to expand in many parts of the world. Countries like Australia and Indonesia intend to increase their exports of coal and are planning massive new coal mines. Their ambitions are incompatible with the world’s commitment to reduce greenhouse gas emissions.
A global moratorium on new coal mines is needed. Coal companies argue that stopping any particular mine makes little difference - as an equivalent mine will just be built in its place in another state or another country. Only by acting together can this dilemma be overcome.
How will it work?
The proposed moratorium applies to new mines or expansions of existing mines beyond their existing approvals. Existing, operating mines will continue to operate until their approved reserves are extracted or they become uneconomic.
Most fossil fuels must stay in the ground if the world is to keep global warming below very dangerous levels. This has been widely acknowledged, including by the Intergovernmental Panel on Climate Change, International Energy Agency, Bank of England, US President Obama, French President Hollande. We need to 'keep it in the ground'.
Coal is not just the dirtiest fossil fuel, it’s the most abundant. There are around 1,000 billion tonnes of coal in world reserves. Coal also causes enormous damage to human health and local ecosystems. In the power sector it can now be replaced with renewable energy.
Two decades of climate talks have focused on emissions reductions, but have ignored the other end of the supply chain, where fossil fuels are extracted. Put simply, if the world doesn’t tackle the global supply of coal, we will have far less chance of restricting consumption of coal.
The coal industry is preparing to expand supply – an expansion that will undo the benefits of the Paris agreement.
A moratorium on new coal mines will also make progress on climate change easier to communicate. Emissions targets can seem abstract and difficult to understand for many people. An agreement to end this well-known dirty fuel is far more tangible.
What will be the economic impact?
An agreement to build no new coal mines will send the strongest political signal that the reign of coal is over. It also provides certainty for financial markets, making investment in cleaner energy more attractive and financing more difficult for new coal-fired power plants.
As supply falls, prices are likely to increase. This will benefit the owners of existing coal mines, or countries that choose to derive tax revenue from the increased coal profits.
Who will be affected?
Countries that have currently undeveloped coal reserves in excess of the needs of their own coal-fired power stations will not be able to sell this coal internationally. This would include much of Australia’s coal reserves.
Companies that have speculated on developing coal mines in the future and already paid for exploration and development rights will lose as these will likely become ‘stranded assets’ which cannot be developed or sold.
Why is Australia important?
Australia has a long history of working against global cooperation on climate change, often at the behest of its powerful coal industry. While Australia’s emissions targets are typically unambitious, Australia’s biggest contribution to climate change is not its own direct emissions, but its ambition to become the world’s largest coal exporter.
Australia’s coal expansion plans revolve around the Galilee Basin in Queensland, inland from the Great Barrier Reef. Adani's Carmichael mega mine will produce 2 billion tonnes of coal. This is enough coal to make a band of coal one metre deep and ten metres wide that would stretch around the world five times. Carmichael is just one of nine mines planned in the Galilee Basin. The Galilee Basin is only one of many areas undergoing export coal expansion in Australia.
If Australia is able to develop its coal export plans it will have a major impact on world coal markets, making coal cheaper and thwarting the ambition set in Paris.
What about energy poverty?
Billions of people lack access to electricity and clean energy sources. This is a major health issue and an impediment to economic development.
But while the coal industry claims that coal is the answer to energy poverty, their arguments do not stack up. Indeed, when coal companies themselves deliver energy poverty programs, they do it with anything other than coal. The proponents of the Carmichael mine donate solar street lights to villages in India.
The reason for this is that in many cases renewable energy is now cheaper because it avoids the need for costly grid connections. New coal power doesn’t go to the rural poor, who are not connected to the grid, but to wealthier people with existing connections, as pointed out by a former Secretary of the Indian ministry of power. The World Bank agrees that clean energy is the solution to poverty, not coal, impacts from which will hit the poor first and hardest.
What will happen to coal prices?
World coal prices are currently lower than recent years. Worldwide, many coal mines are operating at a loss. This has led to a massive slump in share prices. While this may be bad for coal mining companies, it is welcome for coal power generators buying coal on world markets.
A moratorium would restrict supply over time, putting upwards pressure on coal prices. This would make cleaner energy more competitive. The benefits of higher prices could accrue to existing miners or to government budgets, depending on their choice of tax policy.
Is the coal industry dying anyway?
Low coal prices in global coal markets are a sign there is already a lot of coal on the world market.
While there are signs that major coal importers are moving away from coal, low coal prices make future coal power plants more attractive in new markets, which risks increasing future demand.
A moratorium would provide certainty for investors and direct the reallocation of capital into clean energy sectors.
What will happen to energy prices?
A moratorium on new coal mines will encourage greater investment in cleaner energy sources, reducing risks (and thus costs) of stranded assets from later more disruptive transitions.
Energy prices are mainly a function of policy frameworks and infrastructure choices. Where domestic generation is powered by mines disconnected from global markets, there should be no impact on fuel input costs.
What about baseload power?
The supposed need for ‘baseload power’ is not a need for coal. Some even challenge the notion itself, when interpreted as 'fixed generation capacity'. The CEO of National Grid, the company that operates the grid in the UK and in North Eastern USA, recently said
"The idea of baseload power is already outdated. ... From a consumer’s point of view, the solar on the rooftop is going to be the baseload. Centralised power stations will be increasingly used to provide peak demand”.
Reliable power can be provided by renewables, storage and demand management. The price of storage is falling fast - including batteries, molten salt storage with solar thermal, or pumped hydro storage – and many analysts see this as game-changing for existing energy systems. Energy efficiency and demand management are just as important in designing a clean, cost-effective system. There are also proposals for using excess renewable electricity to make carbon-neutral fuel.
Doesn't Australia's prosperity depend on coal?
Coal is a small employer and a small contributor to government budgets in Australia. Other industries employ many more people, per unit of output, than mining. Even in Queensland, our largest coal exporting state, coal employs just 1 per cent of the workforce and pays only 3 per cent of state revenue through royalties, around the same amount received through car registration.
The coal industry is heavily subsidised by state and federal governments. Staying in Queensland, that state spent $8 billion assisting the coal industry between 2008-09 and 2013-14, expenditure that Queensland Treasury expressly states “means less infrastructure spending in other areas, including social infrastructure such as hospitals and schools.” Tax breaks, particularly relating to fuel inputs reduced federal taxes by $4.5 billion in 2012-13. These figures do not consider economic, health or ecosystem impacts from coal mining.
While coal export earnings are considerable, the industry is almost entirely foreign owned, meaning most profits are also exported. At the moment, many mines are struggling to make a profit, because the rush to develop more mines has led to a collapse in coal prices. According to IEEFA in late 2014 “the Average Australian thermal coal mine [is operating] at a marginal loss on current pricing of US$63/t Newcastle benchmark.”