When AGL CEO Andy Vesey announced a new project to convert brown coal to liquid hydrogen in Victoria’s Latrobe Valley this week, transition was on his lips.
“As we transition to cleaner technologies,” Mr Vesey said, “this project may spark a reinvigoration of Latrobe Valley’s energy industry by generating a competitive edge in a new market.”
Prime Minister Malcolm Turnbull launched the hydrogen trial at Loy Yang in Victoria’s east. (ABC Gippsland: Emma Field)
Prime Minister Malcolm Turnbull was also talking transition.
“It is critically important that we invest in energy sources of the future and that we affect the transition from older forms of [energy] generation to new forms of generation and we do so seamlessly.
“Getting the transition right is critically important,” he said.
The Federal and Victorian Governments are providing $100 million towards the cost of the trial.
Mr Vesey has been staring down the Federal Government in recent weeks over AGL’s plans to decommission the Liddell power station in 2022.
AGL is Australia’s largest owner of coal fired power stations and Australia’s biggest emitter of carbon dioxide. It is also the most vocal of the big coal industry companies about transitioning out of coal.
“As Australia transitions to a carbon constrained future, creating new sources of prosperity and growth in communities which host conventional coal power stations is a critical priority,” Mr Vesey said this week.
The day before, Minister for the Environment and Energy Josh Frydenberg touched on the issue of transition as he talked about the challenge of integrating climate and energy policy.
“The question is this,” Mr Frydenberg said.
“How do we establish a policy framework that manages the transition; achieves the objectives of lower prices, higher reliability and lower emissions; and provides constancy and consistency through political cycles?”
New coal tax proposal
At a conference on coal transition in Canberra this week, a new tax on coal was proposed to help communities adjust to a downturn in coal production.
One of the co-authors of the proposal is Professor Frank Jotzo, the director of the Centre for Climate Economics and Policy at the Australian National University.
He said there was every possibility of rapidly declining coal demand in the coming decades.
“It’s important to help the industry overall and the regions where the industries play a large role to adjust to that,” Professor Jotzo said in the leadup to Coal transitions: a symposium on current research, run by the ANU College of Asia and the Pacific.
“We’re looking at the economic and social aspects of the problem,” he said.
Frank Jotzo is a Professor at the Australian National University’s Crawford School of Public Policy. (Supplied)
“We’re not framing this as a moral or ethical challenge. In our investigation of a possible coal tax, we’ve put those things aside and simply looked at the economic self-interest of Australia and other coal exporters.”
The proposal examined the effects of taxing Australian coal exports by about $US18 ($23) a tonne, predicting the tax could raise up to $US16 billion ($20.5 billion) by 2035.
The proposal also looked at what would happen if the world’s four biggest coal exporters — Australia, Indonesia, South Africa and Columbia, all applied an export tax.
In this case, global carbon dioxide emissions could drop and a collective $US125 billion ($160.2 billion) could be raised over the next 20 years.
Finally, the study looked at what would happen if the big four coal exporters put a tax on production, estimating that could raise a collective $US266 billion ($340.9 billion).
But in the wake of Australia’s last short-lived carbon tax, the authors of the proposal admit that questions remained over whether coal taxes by major suppliers would be politically feasible, even if they could yield economic benefits.
Politicians at odds over a coal transition
Two weeks ago, Resources Minister Matt Canavan said he found it highly objectionable to talk about people’s loss of jobs and livelihood as a transition.
“Let’s be frank, that’s a euphemistic term,” Mr Canavan said.
“That’s a term to try to hide what will be the real impacts of that happening.
“For many thousands of businesses and people in central Queensland and north Queensland and in the Hunter Valley, it won’t be a transition, it’ll be utter heartache for them and their families.”
Resources Minister Matt Canavan says Australia’s mining boom is far from over. (ABC News: Adam Kennedy)
Labor’s climate change spokesman Mark Butler said unions and non-government organisations lobbied very hard at the Paris Climate Conference in 2015 to include the term “just transition” in the agreement.
“Malcolm Turnbull and other governments lobbied to try to exclude that commitment but thankfully they were unsuccessful,” he said.
Mr Butler agreed with Professor Jotzo that Australian workers needed a just and orderly transition to a clean energy economy.
“What hurts workers and communities most are unplanned, ad-hoc closures that don’t come with well thought out government support,” Mr Butler said.
Australian coal exports could actually rise by 2040
Policy decisions made at this week’s COAG Energy Council meeting could affect the future of Australia’s domestic coal demand.
But the majority of Australia’s coal production is exported.
So the need for a coal transition depends in part on whether Australia’s international coal customers keep buying.
To put domestic and export coal volumes in perspective, AGL’s Liddell power station burned about 4 million tonnes of coal last year, judging by emissions figures.
A view of Lake Liddell with the Liddell power station reflected in the background. (Wikimedia Commons)
Australia exports that much coal about every four days. Australia exports nearly 400 million tonnes of coal a year.
All of Australia’s coal export customers have signed the Paris Agreement, which requires them to take action to reduce emissions of carbon dioxide.
According to Adam Walters, the principal researcher of consultancy Energy Resource Insights, Australia exports more than a billion tonnes of carbon dioxide each year in coal, gas and oil exports, making Australia the world’s third biggest exporter of carbon pollution.
He said only Russia and Saudi Arabia exported more carbon dioxide in fossil fuel exports. For Australia, the vast majority of that carbon is from coal.
Despite the Paris Agreement and the carbon risk to Australia’s coal exports, the benchmark International Energy Agency (IEA) World Energy Outlook last year predicted Australian coal exports could actually increase from 360 million tonnes of coal equivalent (Mtce) to 425 Mtce by 2040.
The outlook predicted that Australia could expand its exports by 19 per cent over the coming 25 years.
Quoting IEA figures, Resources Minister Matt Canavan said Australia had no need to prepare for a coal transition because the export business to Asia would stay strong for decades.
“Far from a market in structural decline, demand for thermal coal has been accelerating, at a pace never seen before,” he said.
However, a recent report from consultants McKinsey and Company questions that view. The report found that the acceleration of cost declines in renewables over the next 30 years could halve coal demand for power in China and India. The fall in demand could lead to lower thermal coal exports from Australia.
There is no consensus on the outlook for Australia’s coal export industry. Mr Canavan summed up the fraught business of coal forecasting when he said “the only accurate forecast is probably that every forecast will be wrong”.
World’s biggest coal port plans a transition beyond coal
Stockpiles of coal from the Hunter Valley’s mines are organised near the shores of the port. (ABC Newcastle: Robert Virtue)
Newcastle, the world’s biggest coal port, exports an average 160 million tonnes a year, but the new boss is already thinking of diversifying out.
The Port of Newcastle’s new chairman Roy Green said that there would be an inevitable transition to renewable energy sources around the world.
“So we have to be prepared for that,” he said.
“We’re not going to change the port’s business model overnight. We’re committed to our coal customers and we will continue to export our very high quality thermal coal while customers internationally want to buy it.
“While committed to coal export, while the prospects exist maybe for another decade, two decades, we can’t be sure. We also have to pursue in parallel a diversification strategy.”
The Port of Newcastle wants to move into container shipments, which are currently dominated in New South Wales by Sydney’s Port Botany.
“That will contribute to the growth of the Hunter region, which in the past was very dependent on primary commodities, but is increasingly taking up the challenge to a more knowledge based economy,” Mr Green said.