Home > Economics - General, Environment > Leaving it in the ground

Leaving it in the ground

July 23rd, 2015

If there’s to be any chance of stabilizing the global climate, a large proportion of existing reserves of coal will need to be left in the ground. The Galilee Basin, estimated to contain 27 billion tonnes of coal, enough to raise atmospheric concentrations of CO2 by several parts per million on its own, is arguably the biggest test case in the world right now. Fortunately, the latest news is good.

The critical project is the Carmichael Mine proposed by Adani Coal. To get the coal out Adani proposed a new rail line and a port expansion at Abbot Point. Korean conglomerate POSCO (originally a steelmaker) was named as the builder of the railroad, with the prospect that POSCO would take an equity share and the Korean Export-Import Bank would lend money on favorable terms. If the rail line is built, other projects could go ahead. One such project, owned by Bandanna Coal (now in receivership) was just approved by Environment Minister Greg Hunt.

It now seems clear that Adani is mothballing the project. A month ago, the engineering design teams were told to stop work, and now Posco’s contractors have been sent home. Coincidentally or otherwise, Posco has announced the intention to return to its steelmaking roots, with aggressive cuts to its engineering and construction divisions.

Adani is still blaming regulatory delays, but this seems increasingly implausible. The sacking of the engineering teams will set the project back many months, if not years, and burning your primary equity partner doesn’t seem like a sensible response to regulatory problems. At this point, I’d say the strategy is to obtain and bank the regulatory approvals then hope that the price of coal increases in the future. This seems unlikely, given the collapse of demand in the US, declining demand in China and increasing Indian focus on renewables, in which Adani itself is a big player.

Moreover, with every year that passes, the obstacles to coal projects of any kind get bigger. Most international development banks will no longer lend to such projects, global banks are under similar pressure and institutional equity investors are being pushed to divest. It’s unlikely that the proponents of new coal projects in Australia will ever again see a government as favorable as the Abbott government, so if they can’t succeed now, they will probably never do so.

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  1. John Chapman Esq.
    July 23rd, 2015 at 17:52 | #1

    And furthermore:

    Minnesma said Australian corporate and political leaders should heed the shift to renewable energy sources away from coal-fired power in train in the US, India and China.

    “All your markets are disappearing. Are you going to wait till you fall over or are you going to anticipate and move for the next generation?” she said.

    http://www.theguardian.com/world/2015/jul/22/campaigner-who-forced-25-emissions-cut-in-holland-says-australia-far-worse?CMP=Share_AndroidApp_Gmail

  2. rog
    July 23rd, 2015 at 18:08 | #2

    There is an arrest warrant out for Tinkler, who was once a rich miner. Tinkler is not your ordinary hard working mining type but the amount of media he has generated, all bad, can’t be good PR for the resource industry.

  3. Pete Moran
    July 23rd, 2015 at 19:49 | #3

    I have heard it reported (Dr James Hanson, I think) that the fossil gas bomb we’re about to let off is an even bigger problem.

    On the ABC today there was some ANZ analyist talking about all the money problems of the coming fossil-gas break-neck tulip-party was going to cause. No mention of the CO2 time bomb.

  4. Bernard J.
    July 23rd, 2015 at 20:02 | #4

    “All your markets are disappearing. Are you going to wait till you fall over or are you going to anticipate and move for the next generation?” she said.

    I’d be curious to see, when all the dust has settled, exactly what the direct and indirect costs have been to the Australian economy and to the planet’s climate, of the Abbott government’s obdurate opposition to renewable energy and mitigation of human-caused climate change.

    The figures should be carved in stone and mounted Rinehart-style in front of the federal house of parliament.

  5. Donald Oats
    July 23rd, 2015 at 20:10 | #5

    @John Chapman Esq.
    Yeah, the Netherlands civil case her team won is fascinating, especially as she considers Australia has a similar set of applicable conditions which would enable such a civil case in Oz. Given the Australian government has actually reneged on any semblance of duty of protection with respect to the climate change issue, Australia could in fact see harsher remedy argued in court.

    On a more practical note, we have moved beyond the halfway point for a 2C increase in the global average temperature, and Mr Exponential is still with us in terms of growth of GHG emissions. Furthermore, recent scientific work indicates a significant surge of GHG may be precipitated by some positive feedbacks. The surge could further reduce our GHG quota by up to 40%, which leaves very little room with which to avoid pushing the odds beyond 50% chance of at least a 4C increase in temperature.

    Another interesting fact is that on our present trajectory, it won’t be too far into the future before ,a href=”http://www.sciencedaily.com/releases/2015/07/150720154505.htm”>we can no longer reliably use radio-carbon dating, as the isotopic ratios of carbon in the atmosphere will be too skewed by the influx of fossil fuel’s ancient carbon store. I think it was 2050 as estimated date by which carbon dating will be hopelessly unreliable.

    Do political journalists actually read their own newspapers’ reporting of these things? It would be great if they did, and not only read them but hit the politicians between the eyes with questions like “Are you aware of research showing that XXX, and what are you doing about it that is actually consequential?” or similar.

  6. jrkrideau
    July 23rd, 2015 at 20:38 | #6

    @Bernard J.
    Thank you for the idea, Bernard J. If anything, here in Canada, our P.M. Stephen Harper is even worse than Abbott—I know very hard to believe. I think we may have to start a campaign to raise money for such a monument for Ottawa.

    A nice punctured barrel of oil and a broken oil line pipe seems like a good start. However I am open to suggestions…

  7. July 24th, 2015 at 06:40 | #7

    @Donald Oats
    “Mr Exponential is still with us in terms of growth of GHG emissions.” The IEA says not so.

  8. Doug
    July 24th, 2015 at 10:52 | #8

    On climate change issues the financial columns of the papers are making increasingly interesting reading. A few of the financial journalists have got onto the issue and are now providing some coverage.

  9. John Chapman Esq.
    July 24th, 2015 at 11:11 | #9

    Australia’s financial system is at risk of being destabilised by climate change, according to a new report by The Climate Institute.

    Australia’s Financial and Climate Risk, The Climate Institute’s new report, pointed to several factors that are putting Australia’s financial system at risk.

    These include Australia’s carbon-intensive economy, a lack of policy clarity and a reliance on global capital markets, said the report.

    The Climate Institute chief executive John Connor said while some companies and financial institutions are waking up to the implications for their own businesses, many others are still forging ahead as though climate change will have no impact on their plans.

    “There’s a risk that poor policy signalling, delayed action and misreading by markets could lead to a messy transition that threatens the stability of our financial system. This risk deserves closer examination by our policymakers and financial regulators,” he said.

    “The question is whether the entire financial system can adapt in an orderly way to climate change and related shifts in policy, society and technology.”

    Some of the changes in the past two years include “unexpected” shifts in many markets, such as falling value of pure-play coal companies’ shares, declining resources demand from China and falling costs of solar panels, according to the analysis.

    Nations and mainstream economic institutions and organisations now recognise that the global economy must be zero carbon before the end of this century, Mr Connor said.

    http://www.mortgagebusiness.com.au/breaking-news/8706-climate-change-to-hit-financial-services

  10. Tim Macknay
    July 24th, 2015 at 11:53 | #10

    According to Deutsche Bank, even if India installs only a fraction of its targeted wind and solar capacity over the next five years, it will result in an 8% reduction in Indian thermal coal consumption: http :// reneweconomy.com.au /2015/ indias-grand-solar-plans-ruin-abbotts-coal-export-strategy-77514
    No wonder Adani is going cold on the project.

  11. Dave Lisle
    July 24th, 2015 at 14:12 | #11

    After the Government’s budget announcement of a $5 billion Northern Australia Infrastructure Facility, Tristan Knowles wrote in RenewEconomy that “It’s not a stretch of the imagination to think Adani might put in an application for funding under this scheme”.

    I thought it was a stretch, but Hockey did emphasize that this was about funding projects that were NOT commercially viable. Any thoughts?

  12. Hal9000
    July 24th, 2015 at 14:35 | #12

    To get the coal out Adani proposed a new rail line and a port expansion at Abbot Point.

    There’s also a 450km pipeline to get water from the Burdekin, and a 1.5GW power station (coal-fired, naturally). Plus the preliminary earthworks, road construction, worker accommodation etc etc. All before the first lump is exported.

  13. hc
    July 24th, 2015 at 16:54 | #13

    I wonder if the low coal prices will create an increase in the quantity of coal demanded. These things normally work with a substantial lag. A useful proposal I have seen is for countries to buy up now cheap coal deposits and leave them dormant. If the demand for coal does grow then much higher prices will result if many of the cheaper coal deposits are taken off market.

  14. July 24th, 2015 at 19:10 | #14

    @Tim Macknay
    Let’s hope DB are right to challenge the Indian government’s own coal plans. The mechanism DB points to, of solar power creaming off the profitable daytime load and driving down wholesale prices, is well-known from Germany.

    I speculate that an additional solar advantage comes from federalism: state solar programmes are as important as national ones, and state politicians like to reward local voters and donors, not out-of-state coalmen. Presumably coalmining is geographically concentrated.

    Will sentiment on coal in India change enough in the next few months for Modi to offer a real emissions cap in Paris in November? He must want to avoid being stigmatised as the holdout.

  15. J-D
    July 24th, 2015 at 20:09 | #15

    It’s unlikely that the proponents of new coal projects in Australia will ever again see a government as favorable as the Abbott government …

    I’m curious to know how you arrive at that estimate.

  16. rog
    July 24th, 2015 at 23:03 | #16
  17. rog
    July 24th, 2015 at 23:05 | #17
  18. Stockingrate
    July 25th, 2015 at 08:43 | #18

    @John Chapman Esq.
    “Are you going to wait till you fall over?” No, unfortunately, we won’t just wait. Australia will make a bad economic and environmental future worse by: overpopulating; spending too much and financing this with asset sales, debt, and other liabilities such as PPPs.

  19. Hermit
    July 25th, 2015 at 10:46 | #19

    If India has an 8 pm demand peak like the developed world then going all out for daytime solar will cause the so called duck curve problem. As solar PV declines after local 6 pm other power sources need to ramp up faster than designed to meet peak demand. Also in monsoon weather I’d guess PV generates less than 20% of its clear sky daytime output.

    Partial solutions to this problem are behaviour change (eg cook dinner in daylight) or technical (eg batteries) which may be expensive. My guess is that Indians want what we have, namely as much power as you need anytime at the flick of a switch. If we presume to know what’s best for India we should start to do these measures ourselves.

  20. David Allen
    July 25th, 2015 at 11:45 | #20

    @Hermit
    The simplest solution is for India to generate it’s power in countries to its west. In the same way Australia’s eastern states should generate their power in West Aus.

  21. John Quiggin
    July 25th, 2015 at 12:30 | #21

    @Hermit

    My guess is that

    See previous post on derp

  22. John Chapman Esq.
    July 25th, 2015 at 13:40 | #22

    Here’s some more evidence, from the Economist Intelligence Unit / The Economist:

    The value at risk to manageable assets from climate change calculated in this report is US$4.2trn, in present value terms. The tail risks are more extreme; 6°C of warming could lead to a present value loss worth US$13.8trn, using private-sector discount rates. From the public-sector perspective, 6°C of warming represents present value losses worth US$43trn—30% of the entire stock of the world’s manageable assets.

    Impacts on future assets will come not merely through direct, physical harms but also from weaker growth and lower asset returns across the board. The interconnected nature of the problem will reduce returns, even on investments unharmed by physical damage.

    Although direct damage will be more localised, indirect impacts will affect the entire global economy; accordingly, asset managers will face significant challenges diversifying out of assets affected by climate change. Institutional investors need to assess their climate-related risks and take steps to mitigate them; very few have begun to do this.

    Regulation has largely failed to confront the risks associated with climate change borne by long-term institutional investors. To enable meaningful risk analyses, public companies should be required to disclose their emissions in a standardised and comparable form. This report analyses the current state of regulation and proposes steps towards more effectively addressing climate-related risks.

    http://www.economistinsights.com/financial-services/analysis/cost-inaction

  23. John Quiggin
    July 25th, 2015 at 14:41 | #23

    @hc

    The price decline reflects negative demand shocks – the “supply glut” reflects decisions made years ago and long part of the public information that determines prices.

  24. Hermit
    July 25th, 2015 at 15:21 | #24

    @John Quiggin
    Recall my earlier suggestion that Godwin’s Law applies to derp accusers. I also seem to recall some sympathy for that idea. If I’m henceforth blacklisted I hope readers will remember I made some pointed but unfashionable observations in most cases backed by facts.

  25. Alphonse
    July 26th, 2015 at 16:53 | #25

    @Hermit , you were being fashionably unfashionable. The whole Aus government and it’s senior brains trust is similarly faddish.

  26. Mack
    July 26th, 2015 at 21:36 | #26

    @ John Quiggin,
    You might as well dig up all the coal you want….it’s not going to make a hoot of difference to the climate.
    http://jennifermarohasy.com/2015/04/survey-denying-my-position-on-climate-change/#comment-576587

  27. July 26th, 2015 at 22:23 | #27

    @Mack

    Yes, Marohasy quotes Scafetta, who appears to go on about cycles. The influence of those pesky planets, rather than the vast amount of CO2 we’ve pumped into the atmosphere. And I note that in a comment, you mention Doug Cotton, who is just batshit crazy. I prefer the batshit crazy denialists, because they upset the slightly smarter and (ipso facto) slightly more dishonest denialists.

    The ALP has a problem with this stuff, because members of affiliated unions get paid to dig this stuff out of the ground. I couldn’t understand Rudd, “greatest moral challenge of our time” being hand in hand with Ferguson – who just wanted to dig it all up.

  28. Ivor
    July 26th, 2015 at 23:20 | #28

    @Mack

    So, reading her response to Orr, is Marohasy supporting the theory that the orbits of Jupiter, Saturn and the Moon cause 60% of global warming?

  29. July 27th, 2015 at 00:58 | #29

    @Ivor

    I think you’ll find that she won’t like you trying to pigeon hole her like that. She’s just supporting brave, persecuted scientists willing to stand up to the global warming bullies.

  30. July 27th, 2015 at 10:19 | #30

    Solar power in India has been bid in at 8 US cents a kilowatt-hour: http://solarlove.org/skypower-wins-150-mw-india-solar-bid-record-tariff-7-95%C2%A2kwh/

    In the UAE it has been bid in at 6 US cents a kilowatt-hour and in the US at about 5 US cents. And in Australia point of use solar can provide electricity to consumers at a lower cost than any utility scale generation.

    And note that it is not enough for a coal plant to beat renewables on price today. It will have to outcompete renewables on price for years to come to turn a profit and that looks increasingly unlikely to occur.

  31. jungney
    July 27th, 2015 at 15:44 | #31

    European and international banks wont lend to Galilee Basin projects.

  32. David Irving (no relation)
    July 27th, 2015 at 16:43 | #32

    @Mack
    I don’t know why you’d quote Marohasy on anything. I still haven’t decided for sure whether she’s a fool or a liar, but the categories are not mutually exclusive.

  33. Donald Oats
    July 27th, 2015 at 21:12 | #33

    @James Wimberley
    I stand corrected: in more detail, this report analyses the trends. There is a strange dip in the last couple of years (in growth rate of emissions rate, that is), and I’ll leave it to the report to give the explanation.

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