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Coal curse: the black side of the subsidised resources boom

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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