Coal to remain ‘King’ says Roche

By Paula Wallace

Addressing an industry conference in Brisbane yesterday, Michael Roche said, “One might have expected that a standing ovation from the world’s leaders for an Australian initiative could have created a bit of interest among those who report on the fortunes of Queensland…
“But no, Saturday’s Courier-Mail newspaper carried a feature story claiming that we can have either coal mining or the Great Barrier Reef, but not both.”
And this is despite the fact that Queensland has two carbon capture pilot projects under construction and plans well advanced for possibly the world’s first commercial scale coal-fired power station incorporating carbon capture and storage (CCS).
Currently there are no industrial-scale CCS plants operating in the world, but demonstration plants are being built, including some in Australia.
The GCCSI has a mandate of facilitating development of 20 integrated, industrial-scale CCS demonstration projects worldwide by 2020 – that’s 11 years from now.
At a NSW Minerals Council panel discussion earlier this year, chief of CSIRO Energy Technology, Dr David Brockway had this to say:
“I’m not sure that Australia, even with huge amounts of money can accelerate to a three or four year time frame. I think you’re talking about 15 years for that sort of technology to come to a commercial scale."
Roche said that the AJM’s Coal & Energy conference was also timely given that methane from the State’s coal seams is now contributing some 13 per cent of the domestic power needs and is making the transition to a multi-billion dollar export industry.
And for some more good news, Roche reported that Queensland had broken its previous record for coal exports in the last year - at the end of the financial year, exports totalled just over 159 million tonnes. That’s around seven million tonnes above the previous year or 5.8 million tonnes higher than the previous best in 2006-07.
“In dollar terms, we’re still waiting on the full financial year figures, but looking at the first three quarters of 2008-09 year, the value of Queensland’s coal exports was 33 billion dollars. This is more than double the previous year’s total value of 16.4 billion dollars,” said Roche.
Also, the coal industry had employed nearly 4,000 more people in the 12 months until May this year. The QLD resources sector as a whole had grown by almost 10,000 positions over that time according the Australian Bureau of Statistics.
Looking to the future, Roche said, “…you can’t have a rational debate about the future of energy without talking about coal.
“The world has almost 850 billion tonnes of proven coal reserves, meaning that we have about 130 years left at current rates of production.
“The International Energy Agency is forecasting that over next 20 years, global electricity demand will double."
In outlining the energy plans of growing economies such as China, India and Vietnam, Roche described how just ten years from now their additional capacity will by many times greater than Australia’s total power generation.
Australia is leading the race, with the USA, to successfully capture carbon and sequester it on a commercial scale. To date, around 35 million tonnes of liquefied carbon dioxide has been permanently stored in geological formations, primarily in the North Sea, the United States and Africa.
In Australia, in a paddock outside Warrnambool in Victoria, a pilot plant has successfully stored 50 thousand tonnes of liquefied carbon dioxide in a retired oil and gas field deep below the surface.
Oxy-firing technology is being trialled successfully at a coal-fired power plant in Germany. In Queensland, a similar project is under construction at CS Energy’s Callide Power Station, backed by the Australian coal industry, State and Federal governments and private companies.
“We are unaware of another situation anywhere in the world where an industry is levying itself to support the battle against climate change. It’s an initiative that the coal industry doesn’t get enough credit for,” said Roche.
“Next week in Rockhampton at the Queensland Resources Expo, I shall be sharing a stage with Federal Resources and Energy Minister Martin Ferguson, European Union counsellor John Richards and the chief executive of the Global Carbon Capture and Storage Institute, Nick Otter.
“The people of central Queensland are going to be given first-hand accounts of progress towards low-emission power generation because so much of their region’s future is linked to its successful commercialisation,” said Roche.
But ironically, according to Roche, the region’s future is also under threat from within – according to the latest economic analysis from Access Economics, it is communities such as Rockhampton, Mackay and Emerald that are forecast to shoulder most of the economic pain arising from the Australian Government’s proposed Carbon Pollution Reduction Scheme.
“Across Queensland, the cost of putting a price on carbon translates into 28,000 fewer jobs by 2020,” said Roche.
Premier Bligh acknowledges that the CPRS will significantly reduce the competitiveness of coal production in Queensland. In a letter to the Minister Assisting on Climate Change, Greg Combet, she said that so-called “gassy mines” have very limited capacity to reduce emissions at the present time with current technologies. And that the CPRS will impose significant additional cost to such mines but with limited scope for abatement options to reduce emissions. She recommends such mines need transitional assistance.
In the recent publication of Deloitte’s QLD Energy & Resources Index, a quarterly review of Queensland stocks and indices in the energy and resources sector, the firm said that in the last year nothing has changed in terms of the “significant challenges in addressing the practical implications ad potential risks of CPRS exposure.”
The Deloitte Qld E&R Index decreased by $11.6 billion or 33.5 per cent over the twelve month period to June 30th, 2009. The ASX All Ordinaries decreased by 26.0 per cent, and the S&P/ASX 200 Energy and S&P/ASX 200 Materials indices decreased by 27.6 per cent and 35.3 per cent respectively over the same period.
Over the past three months (to June 30th), the Index increased by $3.6 billion or 18.3 per cent. The main increases in market capitalisation came from Felix, Macarthur, and NewHope and the main decreases came from LGL, Linc and Geodynamics.

To view a table of Queensland’s coal exports, by major port, from 2003-04 up to and including 2008-09, click here.

To read a recent AJM report on “new generation” or “clean coal” click here.


More on CPRS – what in may look like in practice
Excerpts from presentation given by Michael Roche, chief executive of Queensland Resources Council, at the QLD Coal & Energy conference in Brisbane on July 15th.
Starting 1 July 2011, the CPRS will require entities with direct emissions of 25,000 tonnes or more of carbon a year to buy a permit for each tonne they emit.
To illustrate – one particular small Queensland coal mine employing 200 people and producing 3.5 million tonnes of coal per year emitted around 300,000 tonnes of ‘carbon-equivalent’ gases in 2008. These emissions were primarily fugitive gases such as methane that escapes into the air during mining, along with diesel and electricity consumption.
There are various, mostly unreliable methods of measuring methane emissions, particularly from open cut operations, and that’s the biggest bone of contention between the coal industry and the Australian Government at this time. With the CPRS as it stands, at the end of each year the mine in question must have a permit to cover each tonne of direct emissions it produced.
The coal mine will receive just a fraction of the transitional assistance proposed for other ‘emissions intensive, trade exposed’ industries in the form of free carbon permits.
These range initially from 66 to 95 per cent free permits, depending on the industry.
Despite being eligible for assistance under the Government’s own criteria, the coal industry is excluded. It’s estimated that as a result, the black coal industry in Australia will incur approximately $15 billion in carbon permit costs out to 2021.
Treated under the Government’s own eligibility rules, the industry should be in line to claim around $9 billion in free permit assistance over those 10 years.
The Government’s current alternative offer is $750 million over five years, or the equivalent of a 4 per cent assistance package.
Australia’s export coal industry is ‘trade exposed’ and a ‘price taker’ in global markets. It can’t pass on increased costs to its customers.
To those competitor countries that I mentioned earlier, we risk conceding the new investment and our future jobs, without any guarantee of a net reduction in global emissions.
The other kick in the guts for Queensland is aimed at the black coal electricity generation sector.
Under the CPRS, the current formula for the Electricity Sector Adjustment Scheme (ESAS) will provide the black coal generation fleet with a disproportionately low level of compensation.
Despite estimates of a $3 billion direct asset loss on the Queensland fleet over its remaining life, the ESAS allows for only $100 million in assistance out of a total $3.5 billion.
This compares with $2.45 billion worth of assistance likely to be provided to Victoria’s brown coal generators, which are considerably more carbon emissions-intensive than Queensland’s black coal generators.
And I note recent reports that, under pressure from Premier Brumby, the Prime Minister has commissioned Morgan Stanley to take an independent look at the adequacy of the assistance to the brown coal generators.
This apparent willingness to reward the most emissions-intensive generators sends a perverse message about the environmental outcomes the CPRS is designed to achieve.
To our knowledge – and we are still wading through the Bill proposed to be the United States equivalent of our CPRS – we cannot find an example of where industry is being asked to bear such a burden. That’s including the European emissions trading scheme. What we do like about the Waxman-Markey Clean Energy Bill in the United States is that it highlights the need for substantial changes to the CPRS as it stands. The design of the US legislation recognises the need for a measured transition to a lower emissions economy.
The proposed US cap and trade scheme will auction only 15-18 per cent of permits for the first decade of the scheme.
In contrast, the CPRS will auction 70-75 per cent of its permits from day one.
The US scheme will not auction 70 per cent of its permits until 2030.
Under the European Union’s scheme, firms will not have to buy all their permits until 2027.
Another important consequence of the Australian CPRS is that the size of up-front costs in the first four years could reduce, if not largely eliminate, the ability of Australian firms to invest in low-emissions technologies.
This is particularly important in a context where the Australian black coal industry – as I mentioned earlier – is trying to build a one billion dollar fund to support low-emission technologies.