The declining role of coal

Moreover, putting a price on carbon also levels up the playing field between electricity generated by coal-fired power stations and electricity produced from renewable sources that have no carbon emissions and are unaffected by the price of carbon. These include wind, hydro, geothermal and solar. When the price of carbon reaches ~$30/tonne, electricity produced from renewable sources with the present exception of solar, becomes slightly cheaper than that generated by burning coal. And therein lies the rub!

At a carbon price of ~$30/tonne, why would anyone invest in a coal-fired power station when it is more profitable to invest in electricity produced by wind, hydro or geothermal? Capital always looks for highest return at lowest risk, so placing a price on carbon will make it more attractive to invest in renewable energy than in coal-fired power stations. And the higher the price of carbon above $30/tonne, the more profitable it is to invest in energy produced from renewable sources.

The use of CCS technology that would eliminate most if not all carbon emissions produced by coal-fired power stations is not cheap to use. Given the present state of that technology, estimates are that its use would only be justified and profitable when the price of carbon reaches ~$50-$60/tonne. CCS technology is expected to be commercially available by 2020, possibly sooner.

This implies that in less than a decade, no new coal-fired power stations will be built and that those currently approved to be built are at best a marginal investment. Though some may be built, they are almost certainly the last of their kind. From 2015 onwards it should be expected that capital will be exclusively attracted to electricity generated from renewable sources, particularly geothermal. Why?

Because Geodynamics Ltd, the leader in the field, has demonstrated that superheated steam produced by hot fractured granites 4km beneath the surface can be accessed and used to generate base load electricity. Early in 2012 it will commence operating a 1MW power station entirely fuelled by superheated steam. This will supply all of its own energy needs and those of the nearby township of Innamincka.

Thereafter Geodynamics and more than 30 other companies now engaged in geothermal mining will build and operate a series of power stations, each feeding 50MW or more into the National Grid. These are expected to supply all of the additional electricity required by the growing Australian economy and make a substantial contribution to achieving the bi-partisan target of sourcing 20 per cent of Australia’s energy needs from renewable sources by 2020.

From 2020 onwards, electricity produced from renewable sources, including solar, are expected to meet all new demand for electricity and start replacing coal-fired power stations thereby reducing the cost of electricity nation-wide.

What are the implications for the coal industry? After showing growth over the next three to five years, domestic use of coal as a source of electricity can be expected to decline in the next decade. After 2020 that decline is expected to become more pronounced, due to replacement of coal by geothermal steam and developments in solar and battery technologies.

Australian coal exports in the next decade are predicted to remain at their present levels, at best, but are more likely to decline due to increased competition from other exporters, particularly Mongolia. Beyond 2020 they will decline significantly due to advances in solar and other technology and the cost of CCS to our biggest customers, Japan, India and South Korea, currently among the world’s worst polluters

Australia can not afford to delay putting a price on carbon and has indicated an intention of doing so by 2012. To act otherwise may well expose Australian exports to a carbon tariff imposed by countries that have already introduced a price on carbon.

Those countries will not be prepared to have their industries disadvantaged by countries that have refused to price carbon. Countries that buy our coal, particularly Japan and Korea, will no doubt also seek to avoid tariffs on their exports by putting a price on carbon, a price which is unlikely to increase our coal exports.

The overall effect on our mining industry is for growth in the very short term, followed by a period of stagnation and after 2020, possibly earlier, a decline. So think again Minister Combet and do what you need to do. Put a price on carbon sooner rather than later and put in place appropriate and timely measures to retrain coal mining employees and find them other work. At most, you have five years to get those processes well established.

Professor James Hansen (PDF 534KB) and other scientists point to dangerous irreversible climate change being reached by permitting greenhouse gases in the atmosphere to increase much beyond 400ppm. By August 2010 they had reached 388ppm. Minister Combet is responsible for ensuring that Australia does not help push the world over a tipping point that endangers our species. He can not meet this responsibility by presiding over on-going expansion of the coal industry.