The threat to and the dangers of coal

Coal is a huge industry in Australia. It employs more than 30,000 people and as many again in coal related industries such as transport, engineering services and the development and operation of infrastructure. More than 120 coal mines are in operation in Australia and that number is expanding with most growth occurring in Queensland and New South Wales.

In 2009 Australian coal exports are expected to be valued at more than $26 billion, while the domestic market for coal will use about 75 million tonnes: 65 million tonnes of this is used to generate electricity while the balance is used for production of metals, chemicals and for smelting.

Coal is the most reliable and cheapest source of electricity, costing only 60 per cent of the price paid in Europe. This gives Australia an important competitive trading advantage. It is also a major source of government revenue. This takes the form of GST paid to the Commonwealth and Mining Royalties paid to state governments, particularly important to Queensland and New South Wales.

Foreign exchange earnings from the export of coal make an important contribution to national reserves. And then there is the question of the billions invested in power stations which rely on coal and the need to meet increasing demand for base load electricity. The coal industry is therefore rightly seen as having a very important position in the Australian economy.

Little wonder that federal and state governments should refuse to contemplate any action which would harm the future of coal, even though coal is by far the largest source of CO2 pollution in Australia. On the other hand they are prepared to invest hundreds of millions into so called clean coal technology better known as Carbon Capture and Sequestration (CCS).

They argue that development of CCS technology will enable all countries dependent on burning fossil fuels for generating electricity to continue doing so without polluting the atmosphere. This would preserve the Australian coal industry, and significantly reduce greenhouse gas emissions.

What they don’t tell us is that the technology is in the early stages of development, that it is unlikely to be available much before 2020, or that for the next decade there will be on-going, massive pollution of the atmosphere.

CCS involves capture of CO2 gas at the point of emission, its removal from chemical scrubbers used to capture it, applying pressure to liquefy it, then transporting it to an often distant secure underground depository.

The capital cost of retrofitting the technology, if developed, will be considerable. The recurrent operating costs, particularly for the energy required to liquefy, transport and inject the CO2 into the storage area is great. Combined, these will increase the cost of generating electricity from coal to the point where it will prove uncompetitive with electricity produced from geothermal and, ultimately, solar-thermal steam.

A second measure taken by the Commonwealth Government to protect the coal industry is to subsidise both the production and use of coal. In addition, it has promised further subsidies in the form of free emission licenses for our largest polluters, electricity generation and smelting, when an Emissions Trading Scheme (ETS) is introduced in 2010. This will spare them the cost of having to buy licences on the open market and reduce the level of tariff increase necessary to pay for emissions.

Free emission licences are more than a subsidy. They are also a means of keeping the price of electricity generated from fossil fuels below that generated by other means, particularly from renewable sources. They distort the market and ensure that electricity produced from renewable sources are less competitive than coal or other fossil fuels.

This does nothing to send a price signal encouraging consumers to use less electricity and so reduce dangerously high CO2 emissions. How then is government to achieve these reductions? What if CCS technology proves too expensive or inefficient? Can cheaper electricity be produced from renewable sources? If so, what effect will this have on coal?