Australians divided over coal policy

By Jamie Smyth
Originally published in the Financial Times

Until recently they were thriving coastal communities. But rising sea levels and erosion, which authorities blame on climate change, this year forced the relocation of the villages of Vunidogoloa and Narikoso in Fiji, creating almost 300 climate refugees.
On Friday, a group of South Pacific islanders hit back, taking on what they see as a powerful symbol of their problem in Australia – the world’s second-biggest coal exporter. Boarding traditional canoes they blockaded Newcastle, one of the world’s largest coal ports, to draw attention to global warming.

“Our islands in the South Pacific are already feeling the impact of climate change but this will affect everyone on earth,” says Milan Loeak, a 24-year-old youth worker from the Marshall Islands.

“Australia is a big country that can make a difference through its actions. It needs to stop mining so much coal,” says Ms Loeak.
The South Sea Islanders’ protest, organised by the environmental group, comes amid a bitter debate in Australia and elsewhere over the future of the country’s vast coal reserves and its climate change policy. Last year Australia exported A$39.8bn of coal, the country’s second biggest export earner after iron ore. Annual production of Australian thermal coal – the type burnt to generate electricity – is forecast to grow by 3 per cent a year to 291m tonnes in 2018. The country has about 110 years worth of reserves of black coal and 500 years of brown coal, or lignite. Environmentalists say this coal, which produces almost twice as much greenhouse gas when burnt as natural gas, must stay in the ground to avoid catastrophic warming. Big investors in Australia including BHP Billiton, Rio Tinto and Glencore argue coal is a vital fuel necessary to lift hundreds of millions of people in developing countries out of poverty. “Cheap energy is the way you grow your economy,” says Peter Lynch, chairman of Cokal, a miner specialising in coking coal, which is used to make steel. “It is hypocrisy for developed nations to turn around and say the developing world shouldn’t use coal when they have done so themselves.” US miner Peabody Energy recently launched an online campaign to urge G20 leaders to support the coal industry to fight energy poverty.
Since taking power last year Tony Abbott, Australia’s prime minister, has staunchly supported coal miners by prioritising economic growth over environmental protection. His government has repealed the carbon and mining taxes, approved coal ports near the Great Barrier Reef and begun a review aimed at reducing incentives for renewable energy – moves that have drawn criticism from environmental campaigners and opposition parties.
This week the Liberal-National coalition turned its guns on the global fossil fuel divestment movement, which has begun attracting followers in Australia. Mr Abbott described a decision by the Australian National University to sell A$16m in shares in several resources companies, including Santos, Sandfire Resources and Independence Group, as “stupid”. Several cabinet members called on the college to reconsider its decision.
“Let’s have no demonisation of coal,” said Mr Abbott at the opening of a coal mine on Tuesday. “Coal is good for humanity, coal is good for prosperity, coal is an essential part of our economic future, here in Australia, and right around the world.”
The government’s intervention prompted the left-leaning Australian Institute think-tank to publish an open letter signed by former conservative prime minister Malcolm Fraser and other prominent Australians urging the government to call off its attack on ANU.
“It is every investor’s right to make their own investment decisions without bullying from vested interests and government ministers,” said the letter.

Richard Flanagan, the Australian novelist, later used the occasion of his Booker prize win in the UK to attack the Abbott government’s promotion of coal and environmental record. “I’m ashamed to be Australian when you bring this up,” he told the BBC.
The debate over Australia’s energy and climate policies is likely to intensify ahead of next year’s UN climate change summit in Paris, which will discuss new emissions reduction targets. Australia and Canada, both countries rich in natural resources and with conservative governments, look set to oppose cuts in greenhouse emissions, which could undermine economic growth or jobs.
Environmentalists claim that opposing deep cuts in emissions and supporting the coal industry are short-sighted policies on scientific, financial and moral grounds. They point to five studies published by the American Meteorological Society last month, which concluded the extreme heat experienced in Australia in 2013 was linked to climate change.

“Australia is already feeling the affects of climate change with bushfires and drought-affecting agriculture,” says Simon Copland of the environmental group
“It is hardly surprising more investors are divesting from coal because they see the risk that these assets could become stranded due to new climate regulations.”
Coal miners face headwinds
Plunging prices, environmental activism and the rise of renewable energy are some of the headwinds facing coal miners.
Spot thermal coal prices at Newcastle port have halved since peaking in January 2011 and are hovering at five-year lows of about US$65 a tonne – a level at which at least a third of mines are operating at a loss. The fall in prices has been prompted by a 60 per cent surge in global supply between 2000 and 2010 following investment booms in Australia, Indonesia and elsewhere. The shale gas revolution in the US and a decline in the cost of renewable energy has heightened competition. A dip in demand in China, where the government plans to ban dirty coal in some regions to tackle pollution, has depressed prices. The imposition of 3-6 per cent tariffs on coal imports this week by China has further hurt Australian producers. The big question is whether these changes are structural or cyclical in nature. A key test may be the proposed development of the some of the world’s biggest coal mines in the Galilee basin in Australia. Indian companies GVK and Adani Enterprises and Gina Reinhart, Australia’s richest person, are seeking to raise tens of billions of dollars to build mines, rail and port facilities to ship the coal to India.
Environmental campaigners say the projects would become stranded assets while the proponents argue future demand is strong.
Clarke Wilkins, analyst at Citigroup, says these projects could be years away but he is bullish on the outlook for coal.
“The supply side is drying up due to few new projects and significant capacity curtailment, and demand still growing despite the challenges being faced in the market,” he says.