Wednesday, July 13, 2011

The death of coal?

"I just make the point that the whole purpose of tax is to phase out the coal industry . . . I think that the coal industry is the foundation of a modem economy.

"If you look at the Government’s own figures, they say that coal will go from 80 per cent of our power generation to 10 per cent, or 25 per cent if you include clean coal using various forms of sequestration. So the government’s own figures involve a radical downsizing and ultimate demise of the coal industry."

— Tony Abbott yesterday.

Does a price on carbon spell the end of the coal industry? Tony Abbott says it will, and the Greens hope he’s right. But if so, that end is decades away, and the experts who try to gaze into the future of power prices believe that coal can clean up its act and live on.

It's a big issue for Australia. We have a few years’ supply of oil, a few decades’ supply of gas, but several centuries’ supply of coal. If a Way can be found to burn coal without filling the air with carbon dioxide, our descendants will be grateful.

What might worry us more is whether we witl still have affordable power. (No, we haven’t lost it yet, despite all the steep price hikes since 2005. On a global comparison, Australia still has cheap electricity, and is tipped to stay that way.)

But the further out you look, the less we know. Future power costs will depend on how much gas is discovered, which technologies make the biggest breakthroughs to bring down costs, and howmuch global demand raises fuel prices here.

The coal industry is no danger of being killed off by the carbon tax. The great bulk of Australia’s coal production is exported. A carbon tax of $1 or so a tonne on coal output will barely dent export growth when coal prices are more like $200 a tonne.

Treasury estimates the carbon tax will mean coal exports will grow 45 per cent over this decade instead of 48 per cent. So long as Japan, China, India and Korea keep burning coal, the industry will keep upsizing. If they stop burning coal, it’ll be because of their own policy choices.

But What is the future of coal in Australia’s power mix? The reality is that it depends on whether carbon capture and storage develops into a economically viable technology. If it does, coal — including the brown coal of the Latrobe Valley — has a future here. If it doesn’t, it won’t.

Coal is in limbo. For years, few new coal-fired stations have been built in - Australia. Projects have been put on hold until the future of carbon prices becomes clearer. They look set to stay on hold.

The power companies have turned instead to gas and wind. In Victoria, the Western District is home to the new power industiy, with Origin’s 550 megawatt (million watt) gas plant about to open in Mortlake, and AGL building a 420 MW wind farm by Macarthur.

By 2009-10, coa1’s share of our electricity supply was already down to 75 per cent. Gas now provides 15 per cent and wind 2 per cent. By 2030, officials forecast, gas will provide 37 per cent of our power, Wind 12 per cent and coal just 43 per cent.

As the graph shows, we have a range of options. It is taken from a report by the Australian Academy of Technologicial Sciences and Engineering, whose experts predict that by 2020 carbon prices will make lower-emission gas decisively cheaper than black coal, let alone brown.

Coal’s future lies with carbon capture and storage (CCS). Its progress has been disappointingly slow; industry plans have foundered, and last year Tony Abbott promised to withdraw all government funding from CCS programs. But in the long term, it has to work if coal is to have a future in a world of carbon pricing.

The experts believe coal will make it. As the world cuts emissions, carbon prices rise, CCS technology will become cheaper, and finally, economically viable. By 2050, Treasury forecasts, almost 30 per cent of Austra]ia’s electricity will come from coal and gas-Fred power stations that Will bury their carbon dioxide underground.

Let’s hope it’s right.