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Coal curse: the black side of the subsidised resources boom

As we are so often reminded, Australia has abundant reserves of high quality coal. Mining magnates, industry lobbyists and politicians all talk up the value of coal for the Australian economy, with exports…

Who’s paying for this? You, probably. Uday Phalgun

As we are so often reminded, Australia has abundant reserves of high quality coal. Mining magnates, industry lobbyists and politicians all talk up the value of coal for the Australian economy, with exports worth $44 billion in 2012. As delegates in Rio discuss the future for fossil fuel subsidies in a carbon constrained world, it’s time for Australia to ask itself the hard questions. What is the real cost of energy from coal? How should we weigh up the costs and the benefits of the resources boom in which coal exports play a major part?

The Reserve Bank has argued that, while the importance of the resources boom has provided a positive impetus for the Australian economy, our over-reliance on minerals is a “resource curse” that looms ominously over our economic future.

In a resource curse, high levels of investment and support for the resource sector undermine the viability of other industries that provide more enduring employment opportunities and are more ecologically sustainable. But Australia’s resource curse has an even blacker side, because it is based on an insidious myth about the real economic costs of coal.

Burning coal is the primary source of Australia’s apparently “cheap” energy. Paradoxically, while coal generates a lot of royalties for State governments and is the nation’s second largest export earner, the industry contributes only around 1.8 per cent to GDP. This is compared to other industries such as financial and insurance services (9.6%), retail and wholesale trade (8.6%), construction (7.7%) and health care and social services (6%). It is a relatively insignificant employer, even where mining is concentrated. In the Hunter it employs only 6% of the region’s workforce.

These economic positives: export and royalty income, energy supply, and a small contribution to GDP and employment, have to be weighed against some very high costs. These are usually invisible in the public debate about the coal resource.

The rise of coal would not have been possible without state and federal government backing. Coal royalties are definitely important for some state finances (for example, $1.17 billion in NSW in 2010-2011, although predicted not to grow because of declining world prices). But the extent of government financial support for the industry is noteworthy.

Direct subsidies include coal terminal leases and the provision of infrastructure to transport coal to electricity generators or to port loading facilities. Federal government funding for the Hunter Valley Corridor Capacity rail upgrade totals $855 million.

The whole mining industry receives a subsidy in the form of a tax rebate on the diesel that fuels the trucks and machinery. This $2 billion a year subsidy amounts to $87 annual contribution from every Australian.

Governments provide many high-energy users like miners with cheap electricity. For example, while household and small business electricity prices in NSW are rising at around 15% per year, wholesale prices paid by industry have not risen for 12 years. NSW residents subsidise the price of coal to power stations as well as pay higher electricity prices.

The previous Labor government undertook to supply coal from the NSW government-owned Cobbora mine to electricity generators at a third of the price that coal could sell for in export markets, in order to secure the viability of state generators prior to privatisation. As a result, the government (and the people of NSW) will forego $2.7 billion in revenue, based on current export prices, through to 2020.

Carbon tax compensation is kind to the coal industry. The Coal Sector Jobs Package ($1300 million over six years) can be used by coal owners to avoid closing “gassy mines” that leak high levels of methane gas.

Coal-fired electricity generators will be compensated from the Clean Energy Fund, and have access to $5.5 billion dedicated to assisting generators to restructure. In addition, the federal government is proposing to spend up to $1 billion to decommission some of the highest emission electricity generators.

We don’t just bear the cost of coal through the subsidies our taxes fund. There are other costs. The Newcastle-Hunter region provides a good example of the darkest side of the coal curse. Productive rural industries have thrived for two hundred years in the Hunter Valley, including viticulture, horse breeding and mixed farming. These industries, essential to food supply and a balanced, mixed and ecologically-sustainable economy are being displaced as mining extends its reach.

In the valley floor of the Upper Hunter, 64% (1280 sq km) of the land is taken up by mining leases, while 16% of the land (315 sq km) is open-cut mines. Although mining lobby groups such as the NSW Minerals Council claim “mining is a temporary use of land”, mined land is sterile and can never be used again for productive rural enterprises.

Waterways and land are blighted with saline discharge from mines, coal dust and power station fallout, damaging crops and stock as well as eradicating native species. Villages, farms and heritage properties have disappeared while punishing shift work schedules and a commuter workforce threaten the fabric of family life and community organisations.

The health costs of coal mining and burning are severe, leading some experts to brand coal “the new tobacco”. The Australian Academy of Technological Sciences and Engineering (ATSE, 2009) estimated the total healthcare bill in Australia from coal-fired power station pollution to be $2.6 billion a year.

On a global scale, coal is the leading source of greenhouse gas emissions and thus the main industrial source of climate change. The burning of coal for electricity has grown faster than any other source of greenhouse gas emissions, and accounts for more than half of world emissions from stationary sources.

Though the costs to Australian and global society are huge, with such generous government subsidies, it is not surprising that production of coal-fired power shows no signs of abating, and likewise the continued growth of coal mining and coal exports. The coal curse has descended on Australia, and without urgent action we can only look forward to a mounting burden of illness, environmental degradation, economic dislocation, social disintegration and a warming planet.

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37 Comments sorted by

  1. John Newlands

    tree changer

    Increasingly commenters point to the hypocrisy of coal exports while domestic carbon restrictions are imposed. Very modest emissions cuts at home will be dwarfed by increased emissions from others burning Australian coal. To pre-empt criticism the government has given a staggering 94.5% carbon tax exemption to steel, aluminium, plate glass and zinc industries along with cash. So what is the point of the tax?

    I believe a more correct approach would be to impose carbon tariffs on energy intensive imports. Australia would be joined by Europe and others in a trading bloc. If that is still not enough to keep these heavy industries at home then so be it. Countries without serious carbon restrictions who import Australian coal will know their finished goods face penalties. We can't have both increasing coal exports and commitment to reducing global emissions.

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    1. Stiofán Mac Suibhne

      Contrarian / Epistemologist

      In reply to John Newlands

      Putting a price in carbon in Australia is a start. A late start but an imporntant first step. The EU scheme was launched in 2005 with little of the immaturity and pledges in blood of the Australian polity. The EU price of carbon has been lowered through over liberal free exceptions. I understand that the EU is taking action to reduce the exceptions and increase the carbon price. It seems that in time when the Australian scheme is running the carbon price could then align to the EU price.

      As…

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    2. John Coochey

      Mr

      In reply to Stiofán Mac Suibhne

      A more salient question is how much the European scheme has achieved. I seem to remember a study that showed if a 2 degree tipping point is assumed to be correct and the most optimistic estimates are made the billions of dollars involved have put back the cataclysm by twenty five minutes

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    3. David Arthur

      resistance gnome

      In reply to John Coochey

      You know something? Back when scientists first raised the issue that we had to stop emitting CO2, there was a chance of avoiding that 2 deg C temperature rise.

      One day, you will be asked to account for your actions by your grandchildren.

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    4. Michael Shand
      Michael Shand is a Friend of The Conversation.

      Software Tester

      In reply to John Coochey

      Hi mate, I think the point was to make it cheaper to use renewable energy

      this gives the market an incetive to develop technology and infrastructure that is a gift to the next generation rather than a burden, the burden of continuosly diggin up fossil fuels

      "Yeah kids you can have power, as long as a few of you dedicate your lives to digging up coal"

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    5. JIM LEGGATE

      retired mine employee

      In reply to John Newlands

      Re the coal curse article and the statement that mined land is rendered sterile; this is a huge problem because rehabilitation of land after mining is required by law. The lack of rehabilitation after coal mining in Australia not only makes liars of the coal owners who promised it but also raises serious questions about the lawfulness of the mining.

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  2. Gerard Dean

    Managing Director

    The problem with your argument is that the people of the earth are prepared to give things up eg lovely mixed farms to obtain the benefits of a plentiful electricity supply. I was bought up on "mixed farm" and it was just so hard that I escaped and went to the mines and then to the city. The wages they pay on a farm or a horse farm or a vineyard are pathetic compared with a mining or manufacturing or finance job.

    Cutting out 90% of Australia's electricity would lead to far greater economic distress, social disintegration, illness and social collapse than retaining coal usage, with its minor health costs.

    We, the people, want our electrical power so we can have a fridge and light and a train and a milling machine and a steel mill and our flat screen TV and our iPads and our internet and our....

    Gerard Dean
    Glen Iris

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    1. David Arthur

      resistance gnome

      In reply to Gerard Dean

      Gerard, you pay company tax at 30%.

      Federal government company tax receipts work out at about $60 billion per annum. This means that every $2 billion in coal subsidies could be a 1% decrease in the rate of company tax that YOU are paying.

      Thanks for all the cheap electricity, you are such a top bloke.

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    2. Michael Shand
      Michael Shand is a Friend of The Conversation.

      Software Tester

      In reply to Gerard Dean

      I think you missed the point a little, although it was a good comment.

      I believe you can still have electricity without coal, it seems you are saying "We want power therfor we need coal"

      I think the point was that burning fossil fuels is not a sustainable practice economically let alone the environmental aspect. If it was sustainable then we wouldnt have to subsidies it.

      Imagine sending $2b worth of subsidies to setting up green energy every year, the country would loose their collective shit, but for some reason when it is coal the reaction is along the lines of your response which is "But we need energy"

      It is much more effeciant to set up a solar thermal plant which requires no fuel for the rest of its life vs continuosly digging up coal for the rest of time

      I hope that helps

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    3. Mike Hansen

      Mr.

      In reply to Gerard Dean

      Again Gerard. No mention of climate change.

      We the people (and more particularly our children and grandchildren) would prefer to live in a world that is not substantially warmer than now.

      Climate scientists are telling us that we are already committed to +2 degrees C of warming.

      The venerable International Energy Agency warns that we are on track for 6 degrees of warming if we continue to burn fossil fuels at the current rate.

      "Continued heavy reliance on a narrow set of technologies and fossil fuels is a significant threat to energy security, stable economic growth and global welfare, as well as to the environment."

      http://www.climatespectator.com.au/commentary/iea-we-re-track-6-degree-warming

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    4. Eric Ireland

      logged in via Facebook

      In reply to Gerard Dean

      This idea that reducing our reliance on fossil fuels will lead to "far greater economic distress, social disintegration, illness and social collapse than retaining coal usage, with its minor health costs" is a furphy. We need to make a transition to alternative forms of energy.

      It will be more expensive in the short term, but it's not the end of the world.

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    5. Paul Richards

      integral operating system

      In reply to Gerard Dean

      "I was bought up on "mixed farm" and it was just so hard that I escaped and went to the mines and then to the city." - Gerard

      Many of us were. However cognitive bias can hide the progress we have made in cites with efficiency and application of newly designed agrian ideas that humanise cites. Improve lifestyle and certainly mean we all benefit.

      We hear the fear in the tone of your comment Gerard. It is unfounded and largely the spin of neo-liberal politics, in the US political parties democrate / conservative or here as liberal / labour. All streams of the old politics carry neo-liberals, Tony Abbott led a neo-liberal coup against Turnball.

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    6. Dianna Arthur
      Dianna Arthur is a Friend of The Conversation.

      Environmentalist

      In reply to Michael Shand

      @Michael Shand

      I agree. Subsidising polluting industries makes no sense:

      "Governments provide many high-energy users like miners with cheap electricity. For example, while household and small business electricity prices in NSW are rising at around 15% per year, wholesale prices paid by industry have not risen for 12 years. NSW residents subsidise the price of coal to power stations as well as pay higher electricity prices."

      The Opposition's proposed "Direct Action" is is going provide further…

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  3. Bernie Masters

    environmental consultant at FIA Technology Pty Ltd, B K Masters and Associates

    This has got to be one of the most poorly thought out, biased articles I've yet read on The Conversation. The statistics are false: why compare one sector or mining - coal - with entire industries such as construction or financial and insurance services. Why complain about the 'subsidy' available to mining through a rebate of tax on diesel when this refund of tax was due to the mining industry not using public roads which are maintained, at least in part, by the tax on the fuel consumed by road users…

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    1. David Arthur

      resistance gnome

      In reply to Bernie Masters

      Bernie, Mining industry not using public roads? You don't live in Queensland, do you?

      BTW: My understanding is the mining industry gets about $2.7 billion p.a. from taxpayer funds courtesy of the diesel fuel rebate, and I also understand the government gets about $60 billion p.a. from Company Tax. That's with a Company Tax rate of 30%.

      Please check these figures, and tell me if I'm wrong.

      So if the mining industry was excluded from diesel fuel rebate, the Company Tax rate could be decreased to 29%, and the government would have an extra $0.7 billion (to put into potholes in Queensland roads?).

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    2. Gil Hardwick

      anthropologist, historian, novelist, editor and publisher at eBooks West

      In reply to David Arthur

      The argument being put is not about who uses public roads, but as stated very clearly about coal mining alongside small mixed farming, as follows:

      "Productive rural industries have thrived for two hundred years in the Hunter Valley, including viticulture, horse breeding and mixed farming. These industries, essential to food supply and a balanced, mixed and ecologically-sustainable economy are being displaced as mining extends its reach."

      I'm inclined to argue that this small mixed farming is…

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    3. David Arthur

      resistance gnome

      In reply to Gil Hardwick

      Thanks Gil, excellent points.

      You're from the Hunter region, are you?

      As it happens, so is Sharyn Munro. I suggest you have a read of her recent book, "Rich Land Wasteland" and have a little think about it.

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    4. Bernie Masters

      environmental consultant at FIA Technology Pty Ltd, B K Masters and Associates

      In reply to David Arthur

      David, my understanding is that, if a mining company uses a public road, it must declare the proportion of its vehicle fleets' travel on such roads versus non-public roads and not claim the diesel fuel rebate for this proportion of its diesel consumption.
      And, while not wanting to split hairs with you, nonetheless mining companies mostly create the wealth from which they pay the diesel tax so, if they then claim some of the diesel tax back as a rebate, it's not actually correct to say the taxpayers of Australia pay it to them. They're taking back money they've earned themselves, primarily from overseas buyers of our minerals.

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    5. David Arthur

      resistance gnome

      In reply to Bernie Masters

      Bernie, mining companies create NO wealth. All that they do is bulldoze people and culture off country, blow it up and ship it out s quick as they can.

      They contribute as little as possible to this country - they've even got to the point of Enterprise Migration Agreements, for which they fly in workers from overseas to do their dirty work for them.

      If a mining company cared about anything other than selling the family silver, they'd at least employ locals (including training and educating…

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    6. Bernie Masters

      environmental consultant at FIA Technology Pty Ltd, B K Masters and Associates

      In reply to David Arthur

      David, thanks for the comment. I guess how one views the mining industry depends on where one is sitting. I spent 12 years working for a company which is now Iluka Resources. It mostly employed local people, had no FIFO workers, fully rehabilitated its former minesites and created wealth by exporting most of its product and spending 80% or so of its resulting income on materials and services here in WA.
      You obviously see a different mining industry than me and I'm not going to disagree with you…

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    7. Dianna Arthur
      Dianna Arthur is a Friend of The Conversation.

      Environmentalist

      In reply to Bernie Masters

      Don't often find myself in agreement with you, but do agree with:

      "Hence, we should keep the mining industry focused on the goals that we as a nation want: hiring and training Australians, fully rehabilitating minesites, paying fair wages, etc"

      Rudd's original mining tax would've assisted in bringing the mining companies into some sort of civic responsibility.

      Instead we have a unbalanced economy (two-speed doesn't cover the problems). A few winners, but mostly losers.

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  4. Dale Bloom

    Analyst

    Chilean mining companies are investigating ways to reduce their electricity demand, by producing their own electricity.

    http://www.mining.com/2012/03/23/chiles-mining-industry-hunts-for-renewable-energy/

    This could be useful for mining companies in Australia. When a coal mine has run out of coal, the mining company could simply convert over to producing electricity, and then export it onto the grid.

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    1. David Arthur

      resistance gnome

      In reply to Dale Bloom

      Good idea Dale.

      Mind you, if the mine has run out of coal, from what are they going to make the electricity?

      If it is to be solar thermal, why not cease coal-mining operations immediately, backfill the pit and install the solar thermal hardware now?

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    2. Paul Richards

      integral operating system

      In reply to Dale Bloom

      Dale - where did you get the idea mining companies have not been making their own electricity? The cheapest method of production sits in the core oth their corporate ethos.

      Right here and now personally I am aware that mining industry electrical engineers are at the cutting edge of technology and can assure you we will not need to model Chile in this area. We have solar being used now.

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    3. Dale Bloom

      Analyst

      In reply to David Arthur

      The biggest problem is that the country now depends on coal exports to pay for all the other imports.

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  5. Murray Webster

    Forestry-Ecology Consultant/Contractor

    Whilst I do think that moving to renewable energy sources as soon as possible is imperative, this article goes a little too far in that it overstates the impacts of coal mining. In particular:

    "mined land is sterile and can never be used again for productive rural enterprises"

    This is plainly incorrect. I know of eucalypt plantations and environmental plantings on ex open-cut mines in the Hunter. Statements like this undermine the integrity of the article, open the authors to justified criticism…

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    1. Robert Moore

      Street Sweeper

      In reply to Murray Webster

      According to the NRMA only 25% of the excise goes into roads, the bulk goes into consolidated revenue. So basically the diesel rebate means coal companies are avoiding paying for health, education etc. Also Howard took the inflation adjustment off in 2001so the excise is now worth 22% less, according to Wikipedia on fuel taxes in Australia.

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    2. evan mcdonald

      contractor

      In reply to Murray Webster

      Thought you might like to see what someone who actually works in the industry thinks: This article appeared in the Rockhampton morning Bulletin on 22.12.09. Although I have never ever met the author I was, after some difficulty, able to contact him by phone.

      This is an excellent piece for my friends to send to their politicians or to anybody who needs to be educated about Australia's Coal driven power houses.

      Terry is now retired and is in excellent health at age 69. Nobody…

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    3. Mike Hansen

      Mr.

      In reply to evan mcdonald

      Terry is quite the joker. Evan - I hope you did not believe this silly gish gallop of climate denier talking points.

      1. The average global efficiency of coal-fired plants is currently 28% compared to 45% for the most efficient plants. Source - why none other than the "The World Coal Association "
      http://www.worldcoal.org/coal-the-environment/coal-use-the-environment/improving-efficiencies/

      2. The largest wind turbine is the 7.5MW Enercon_E-126. There are 10MW turbines being built.
      http://en.wikipedia.org/wiki/Enercon_E-126

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  6. Gil Hardwick

    anthropologist, historian, novelist, editor and publisher at eBooks West

    Goodness, somebody in Anthropology still doing shamanism and healing.

    I do hope we are not going to try to heal the planet by this means, Linda.

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    1. Gil Hardwick

      anthropologist, historian, novelist, editor and publisher at eBooks West

      In reply to Gil Hardwick

      Interesting the way the apparatchiks and ideologues follow behind marking those who disagree with them down, and their mindless followers up, as if it reflected something called 'public opinion'.

      As somebody wrote before, here on The Conversation being given a red badge instead of a blue can only mean that the criticism is valid, and has hit home.

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    2. Mike Hansen

      Mr.

      In reply to Gil Hardwick

      Interesting that you think that "Goodness, somebody in Anthropology still doing shamanism and healing." is a constructive comment.

      Interesting that you think that readers on The Conversation are not good judges of trite comments. In my experience they are fairly astute.

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    3. Paul Richards

      integral operating system

      In reply to Gil Hardwick

      Gil - you are right on the mark.

      We have so many who reflect the political centre of gravity commenting. Given this is a university portal you would indeed expect more critical analysis, but it is the point of contact between academia and the wider community it is wishful thinking. Like you I see the elementary value systems clearly.
      "Turtles all the way down" - those down just can't see up or even imagine another thought process and value system.

      Keep the comments flowing even if they get you wrong and see red. At least I hear and grok you.

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  7. Peter Boyd Lane

    geologist

    An aspect only just touched on is the impact that many coal mines will have on water. At Collie in WA coal mine water discharge has resulted in summer pools of the Collie River reaching a pH of close to 3 and extreme heavy metal (arsenic etc) concentrations. Historic water influx to mines has been over 5 gigalitres/million tonnes of coal extracted (ie 5 billion litres/mt), it is pumped out but heavily contaminated, a short and very long term cost of coal mining.

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  8. Peg Job

    logged in via Facebook

    I have just read this article and the comments on Mining Australia News. The comments on TC reflect a serious level of anxiety, suspicion and distrust about the mining industry.
    There are a large number of mining companies in Australia, with what seem to be a fairly full gamut of responsible to thoughtless, considerate to greedy companies, and many historical changes along the way as they learnt to do it better. It is a field fraught with potential and actual dramas, and much hyperbole. The reality…

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    1. Paul Richards

      integral operating system

      In reply to Peg Job

      Peg - your experience is similar to mine in WA. Unfortunately others value systems are not as advanced. All we can do is inform those we know as cleverly as possible. Some of the worst environmental damage done over our history has been done by farmers, but today they are often at the forefront support the environment.

      My field of study is "future studies" "foresight" or many years ago called "futurist" and guerilla tactics are often used to get the point across. It is interesting to watch the…

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