COAL HAS been king in Australia ever since British colonists first spotted the black stuff in coastal cliffs north of Sydney in the 1790s. Its grand epoch may finally be fading. China, Australia’s second-biggest coal customer, after Japan, was reported on February 21st to have imposed delays on coal imports from Australia at the northern port of Dalian, but not on those from other countries. A day earlier Glencore, a Swiss-based company and Australia’s biggest coal miner, announced it would cap coal production at current levels. And, for the first time, an Australian judge has refused to allow a new coal mine because it would have contributed to climate change.
The events have intensified a debate over coal’s future in Australia. Already, coal risked being enveloped in political battles over Australia’s climate policy and the economy’s reliance on China, the country’s biggest trading partner. Mining companies must increasingly grapple with not just green protesters but anxious banks, under pressure from investors to limit financing for new, polluting projects. Some big miners brush off any threat. “It is way too early for us to think that this is some turning point,” says Andrew Mackenzie, the chief executive of BHP, a giant miner based in Melbourne.
Coal is forecast to be Australia’s top export by value this year and the industry’s most immediate concern is the status of shipments to China. The delay on shipments has left Australian officials scrambling for explanations. Some recent Australian political decisions affecting China have displeased Beijing. Citing security concerns, Australia last year banned Huawei, a Chinese technology company, from building Australia’s 5G mobile network.
Simon Birmingham, Australia’s trade minister, dismisses as “conspiracy theories” arguments that China’s coal suspension is payback for that. Michael Roche, a consultant in Queensland, a state that supplies China with much coking coal, which is used to make steel, disagrees. He believes China is targeting Australia: “It is letting us know, ‘We can hurt you’.”
Miners hope that any delays with China will be temporary. The industry’s environmental problems, however, will not be. Climate concerns have infused Australian coal’s other recent shocks. On February 8th Brian Preston, chief judge of the New South Wales Land and Environment Court, banned a bid by Gloucester Resources to mine 21m tonnes of coal over 16 years near the country town of Gloucester. Among the mine’s “adverse impacts” the judge listed greenhouse gases that would contribute to climate change. Notably, the mine was to produce coking coal and not thermal coal for power plants. BHP’s Mr Mackenzie reckons the decision is unlikely to have a broad impact. “People will realise the rank stupidity of preventing a development in Australia only to find it’s replaced elsewhere with dirtier coal,” he says. But the idea that concerns over climate change could limit not just mines producing thermal coal but coking coal too is new, with the potential for broad reverberations.
Though Glencore is not abandoning coal, it is steering investment towards commodities such as cobalt, copper and nickel, which underpin a lot of the transition to renewable energy. It is doing so after pressure from Climate Action 100+, a group whose affiliates include several Australian pension funds that want to support cleaner energy. They may put pressure on Glencore to cut coal production in future. Urged along by its investors, BHP has pressed Australia’s mining lobby to revise its position on energy policy. BHP itself, however, retains two thermal coal mines, including one in Australia.
In the long term Australia’s coal industry may see a bifurcation, as exports rise for coking coal, which is crucial for the production of steel, and slump for thermal coal. Already, banks are limiting the amount of finance they make available for coal projects. Australia’s banks have also declined to underwrite a controversial plan by Adani, a firm based in the Indian state of Gujarat, to build what was once billed as Australia’s biggest thermal coal mine in the untapped Galilee Basin in northern Queensland.
David Lennox, an analyst in Sydney, thinks “significant investment” in new coal mines will diminish over the next 30 years. Firms providing capital, he reckons, will see growth in gas and renewable-energy projects providing better returns “because they won’t have people protesting about them”. The Clean Energy Council, an industry body, cites investment of A$20bn ($14.3bn) in 83 renewable-energy projects already under way in Australia; a figure that has doubled since late 2017.
However, the transition from coal to cleaner fuels may be slower than in other countries, because of the industry’s scale. Scott Morrison, prime minister in the conservative coalition government, gave a speech on climate change on February 25th, which he hopes will boost his political fortunes in an election due in May. But he did not mention coal at all. Mr Morrison has openly championed coal. When he was Treasurer two years ago, he waved a lump of it in parliament and declared: “This is coal. Don’t be afraid.” Perhaps he now is.
This post was originally posted at https://www.economist.com/business/2019/03/02/troubling-signs-for-the-future-of-australias-giant-coal-industry.