Coal mining will outlast green hysterics

“Not all jobs are good”, says former Liberal Party leader John Hewson.

That assertion, odd for an economist, fell from Hewson’s recent Australian Financial Review column lashing the Government and Labor for appeasing the coal industry over climate change. Neither, he says, will confront the “necessary transition” to an economy without coal mining. “Some of those jobs, indeed some of those industries”, writes Hewson, “may not be able to be protected, nor should they be”.

More than anything, Hewson’s column encapsulates an important truth about our climate change debates - there is no absolute response; rather, it depends on your socio-economic standpoint.

Over recent decades university graduates engaged in professional or quasi-professional “knowledge work” have grown from a small fraction to over 30 per cent of the workforce. Since this echelon controls the channels of ideas and information, it is hardly surprising that we are bombarded with policy prescriptions that promote, or protect, their interests at the expense of other socio-economic strata.

The gentrification of social policy is a prominent feature of contemporary politics. John Howard, “the battler’s friend” is not immune to it. The trend is apparent on issues like “work-life balance”, “diversity”, urban development, higher education and, last but not least, the environment, especially climate change.

When Hewson says some jobs aren’t good, he’s not thinking of his own. And nor does the whole herd of alarmists bellowing for an end to coal mining.

It’s fashionable to assert that “transition” to a decarbonised economy will be relatively painless. Those peddling this myth tend to draw on a series of undigested, and often misunderstood, research papers and reports, starting with last year’s Allen Consulting effort (PDF 2.09MB)for the Business Council’s Roundtable on Climate Change.

According to the report, greenhouse gas emissions cuts of 60 per cent from year 2000 levels by 2050 would only reduce GDP by 6 per cent less than otherwise. Then came the famous - or infamous, depending on your perspective - Stern Review estimate that “the expected annual cost of emissions reductions consistent with a trajectory leading to stabilisation … is likely to be around 1 per cent of GDP by 2050”.

The figure of 1 per cent was widely described as a cinch. Now, the third instalment of the IPCC’s Fourth Assessment Report, released at the recent Bangkok conference, follows in a similar vein, stating that reducing emissions to acceptable levels will cost no more than 3 per cent of global GDP by 2030.

(The IPCC report brought on the inevitable Sydney Morning Herald headline: “It won’t cost the earth to save the planet”.)

Such pronouncements are commonly used to dismiss the understandable fears of energy sector investors and unions. One egregious case is the AFR’s Brian Toohey, who claims “Australian households and businesses will barely notice the cost of achieving deep cuts to greenhouse gas emissions by 2050”, and adds “we could adopt the 80 per cent target set by California’s Republican Governor, Arnold Schwarzenegger, and still find it a breeze to achieve”.

A breeze to achieve? Toohey writes from his own secure perspective. What for him is a breeze, may well be a tornado for thousands of blue-collar families. While progressives call for drastic measures to save our common inheritance, there won’t be common consequences - some will win, others will lose.

In his book What it means to be a Libertarian, American writer Charles Murray addresses this subject of skewed perspectives with admirable clarity. “Most environmental measures represent class interests in disguise”, he explains, “and involve no public goods worthy of the name”. Writes Murray:

A thought experiment will illustrate what I mean by class interests. Imagine a Congress of the United States that is composed entirely of blue-collar workers and farmers … They identify with blue-collar neighbourhoods, blue-collar incomes, and blue-collar recreations. The rest of this Congress are farmers who know the environment not as an abstraction or an ideal but as a day-to-day reality of their working lives. Let us imagine this new Congress as it turns to the latest proposals for environmental law …

Who is right? The Congress we have now or the Congress of blue-collar workers and farmers? Neither. Many of the currently fashionable environmental positions are arbitrary, and the different rules set by a Congress of blue-collar workers and farmers would be equally arbitrary.

Obviously, some people will suffer dislocation from Kyotoesque emissions cuts, notably workers employed in fossil fuel related industries. On the other hand, most middle class professionals will emerge unscathed or benefit from the process.

Aggregate figures don’t tell the real story. First, there is no unanimity that the impact on GDP growth over time will be negligible. Last year the Australian Bureau of Agricultural and Resource Economics (ABARE) published a much overlooked paper on the economic impacts of climate change policy. The bureau estimated that if we met the Kyoto targets, GDP in 2050 will be 10.7 per cent lower than otherwise. That’s not so trivial. And some environmental economists have come out against Stern’s conclusions, Professors William Nordhaus (PDF 110KB) of Yale and Sir Partha Dasgupta (PDF 37KB) of Cambridge to name just two.

Second, aggregates, national or global, say nothing about the distribution of employment growth over time. Under the hammer of carbon abatement measures, some industry sectors will decline or disappear, while others will expand.

In the same paper, ABARE estimated that if we took independent climate action, even in conjunction with global action, by 2050 our coal and “non ferrous metal” industries (measured by output) will be respectively 32 per cent and 75 per cent smaller than otherwise. In contrast “services”, where most of our loud-mouth greenies are found, will only be 6 per cent smaller. Few displaced workers will manage the transition to expanding sectors.

That’s something you won’t hear from the assortment of “shut-the-mines” zealots, including the Greens, Greenpeace, the Wilderness Society and the Nature Conservation Council, who assembled in Sydney for a coal crisis summit on April 30.

It won’t be a “breeze” at all. Our green-tinged middle class can afford to push the whole panoply of Kyotoesque measures like carbon taxes, emissions trading and renewable energy development. As Murray suggests, however, their choices are “arbitrary”. There are alternative perspectives.

The starting point, of course, is that domestic action will have no impact on global climate realities. Our population is too small. The coal question, though, has a particular twist. Hardline greens contend that, as a major coal exporter, we are morally culpable for the carbon emitted by end users.

This can only be judged in the overall context of global energy, and specifically, coal markets. Australia is the world’s largest single coal exporter, but we account for 29 per cent of coal exportation. The rest comes from various suppliers, ready to fill the gap created by our withdrawal. Many of these are developing countries with few qualms about carbon emissions. And our largest buyers are Japan and South Korea, not emerging giant emitters like China, India, Brazil and Indonesia or major contemporary emitters like Europe and the US.

Japan, which in 2004-5 bought 54 per cent of our steaming coal and 36 per cent of our coking coal, emits 5 per cent of the world’s carbon. By comparison, the US (24.3 per cent), the European Union (15.3 per cent) and China (14.5 per cent) together emit more than half the total.

The dynamic factor in this mix is China, which is set to overtake the US by 2009. The dimensions of China’s coal consumption are sobering. According to Steve Piper of energy information firm Platts, climate change has done little to spoil the world’s appetite for coal, and China, in particular, is voracious.

More than 361 coal-fired power stations have been built by the Chinese since 2002, and 65,000 megawatts (MW) worth of new facilities are under construction. A further 100 stations are planned. About one coal-burning plant is being added to China’s supply capacity per week. Although China mined 2.2 billion tonnes of thermal coal last year, imports have had to rise from two million tonnes in 2001 to 31 million in 2006. The forecast is 36 million this year and 50 million by 2012.

Nor have other countries called a halt. The US has added 27,000 MW of coal-fired capacity since 2002 and plans to develop another 37,700 MW by 2012. In the meantime, Kyoto-signing Europe added 25,000 MW over the last five years and plans an extra 13,000 MW by 2012. And India has projects adding up to 38,000 MW. Overall, 37 countries have plans to build more coal-fired plants, says Piper. By 2012, the world will have 7,500 coal-fired stations in 79 countries.

In short, coal powers 40 per cent of the world’s electricity production and the International Energy Agency projects demand to double by 2030.

Will any of this change if we pull the plug? Not much.

Recently, the prestigious Massachusetts Institute of Technology (MIT) published a wide-ranging study, The Future of Coal. The study points out that “in contrast to oil and natural gas, coal resources are widely distributed around the world”, and “coal reserves are spread between developed and developing countries”. One fundamental conclusion: “we believe that coal use will increase under any foreseeable scenario because it is cheap and abundant”.

While we are the leading coal exporter, moreover, according to US Department of Energy estimates we only have 8 per cent of the world’s reserves. The largest reserves are concentrated in the United States with 26 per cent and the Former Soviet Union with 23 per cent, followed by China (12 per cent), Germany (7 per cent), South Africa (5 per cent), Poland (2 per cent) and many other countries with smaller shares. Clearly, there are ample substitutes should we pull out.

What can be done? Despite reports that John Howard is negotiating an APEC linked regional emissions trading scheme, the Chinese Government, for one, won’t kick the coal habit any time soon. The Communist Party’s hold on power depends on continuing growth at breakneck speed.

As China specialist David Lambton pointed out in an article republished by the AFR (from Foreign Affairs), “Beijing’s priority is sustained, rapid growth, because growth is fundamental to the regime’s legitimacy - and most everything else”. Hence, last month’s National Climate Change Assessment Report, a document released by China’s top economic planning body, rejected “absolute and compulsory” caps on the country’s greenhouse gas emissions.

Nevertheless, the MIT study expresses confidence that “carbon capture sequestration (CCS) is the critical enabling technology that would reduce [carbon dioxide] emissions significantly while also allowing coal to meet the world’s pressing energy needs”. The study estimates that a carbon emission price of $30 (US) per tonne would make CCS cost competitive. The crucial problem is whether the world’s major emitters can be persuaded to implement such an impost, and what form it should take. If, as we have argued, global emissions trading proves to be a pipedream, the only alternative is some type of international agreement - a sort of supersized AP6 - mandating co-operation in the development, dissemination and application of technological improvements.

For such an agreement to emerge, coal suppliers need to be backed by democratically accountable governments, prosperous wealth generating economies and technically skilled populations. In other words, by countries like Australia.

Now there’s an alternative perspective for you. If we want to have a real, as opposed to just a symbolic, impact on stabilising atmospheric carbon, we should think about expanding, rather than contracting, our share of the world’s coal supply.