Opportunity cost and new coal mines

Opportunity cost provides the best way to think about the recent decision to reject a new coal mine at Rocky Hill. That’s the central theme of my latest piece in Inside Story and also of my forthcoming book, Economics in Two Lessons. Given a tight budget of the carbon dioxide and other greenhouse gases we can afford to emit while stabilizing the global climate, every new source of emissions comes at the opportunity cost of an existing source. Since phasing out coal is among the cheapest options any new coal mine comes at the expense of faster closure of existing mines. Almost invariably, its more costly to open a new mine, than to maintain production at an existing mine. So we should not start any new mines and, in general, not expand old ones.

15 thoughts on “Opportunity cost and new coal mines

  1. Coal mines and gas fields also come at the opportunity cost of damaging crop lands or grazing lands, in many cases. Given that climate change is going to damage the productivity of many of these types lands as well, it’s a double-whammy to food security. Destroy a valley with a coal mine, destroy the valley next door with climate change. This is essentially the effect when summed.

    Solar panels can go on roofs. Roofs are already there so there is no new footprint damage to agricultural lands. Solar panels can also be placed in marginal lands or deserts which have no agricultural value.

  2. JQ said in Inside Story article linked above:
    “Sadly, the High Court has shown an appetite for this kind of obscurantism in the recent past. But perhaps it will get this one right.”

    JQ please enjoin, join, (legal term please) higher court action to inform them of “Economics in two lessons” surplants previously held economic theory.

    Little cost. Great opportunity.

  3. The linked article says the NSW Liberal Government night seek to overturn the Court’s decision.

    Why would it do that? The NSW Liberal Government through its planning commission opposed the mine in the first place. It was the decision of the NSW Liberal Government to knock back the mine that was appealed by the mining company to the Land and Environment Court. The two sides in the case were the mining company versus the NSW Liberal Government, and the NSW Liberal Government won.

    While the politics of climate change can be confusing, it really is difficult to see the NSW Liberal Government seeking to undo its own famous legal victory.

  4. @Smith9 I added an explanatory paragraph on this, which didn’t make it into the final version. AFAICT it’s possible for planning decisions made by the relevant government department to be overridden at the political level. If you have more info on this, I’d be interested.

  5. I don’t have any more information on the process, but on the politics
    (from the SMH, Feb 9)

    “Planning Minister Anthony Roberts declined to comment on the judgment’s wider importance, saying only: “That’s the legal process and we respect the court’s decision”.

    A spokesman later added that Mr Roberts was “gratified that the Land and Environment Court agreed with his original decision to refuse a mining licence on the grounds that the proposal did not meet environmental and social requirements. These decisions are made on a case-by-case basis.” “

    Make of that you will, but I don’t think the NSW Liberal government is going to overturn the decision.

  6. It’s also very unlikely that the High Court will get to opine on the climate change reasoning in the judgment.

    One, as astute commentators have noted, the company will be unlikely to appeal because it lost so badly on the local impacts. It’s not going to throw away money trying to get an appeal court to see things its way on the climate change argument when it’s not going to get its mine up anyway.

    Two, appeals from the NSW Land and Environment Court are to the NSW Supreme Court. Just as it’s a long way to the top of you want to rock and roll, it’s a long way to the High Court.

  7. The defense team at Rocky Hill, EDO NSW, said that there was no chance the govt will act against the decision. It was the govt that originally knocked back the project and the miners who appealed to a higher court.

    The miners have 28 days to proceed with an appeal against this later judgment.

  8. The black coal Liddell Power Station will be closed in 3 years time. Domestic coal consumption has been steadily declining with 13 coal power stations representing about 22% of the country’s coal capacity shutdown since 2012. Some of these power stations such as Northern, Hazelwood, Energy Brix, Kwiana, and Muja A and B used stranded coal but others used coal that is now available for export. Black coal available for export will increase prior to Liddell’s closure as coal power stations capacity factors fall as more renewable capacity is built.

    As Liddell’s coal mine already exports coal each tonne the inefficent Liddell plant burns effectively costs the export price of coal. (Minus the low cost of rail transport which may be 2 cents per tonne per kilometer.) This, rather than its age, may explain Liddell’s low capacity factor.

    Because Australia no longer has an oversupply of generating capacity there is likely to be an increase in wholesale electricity prices after Liddell is closed, but because it is a smaller power station than Hazelwood operating at a lower capacity facto,r the effect won’t be as large. Also, it is a planned closure rather than the result of the damn thing falling apart as with Hazelwood. This allows more time for replacement renewable capacity plus dispatchable sources of power to be built.

    After Liddell we are likely to see rapid closures of coal power stations as renewable energy competes with the generation cost of coal on price and increasing penetration of renewables destroys the economics of coal generation by causing frequents period of very low or zero wholesale prices which Australia’s inflexible coal generators cannot easily avoid by shutting down as gas or hydro generation can. This will result in massively increasing the amount of black coal available for export from existing mines. (Assuming there is demand for it.)

  9. This was Roberts’ cunning plan all along. Allow them to challenge in court, knowing that they would lose.

  10. ronald,

    AGL pay a lot less for the coal they use courtesy of the NSW government. A new Owner would not get coal at that price.

    Plus we know coal powered power stations have units that broke down once every three days in 2018. We know what occurs under very hot temperatures. They break down even more!

    We also know from Origin that NEW solar is now that same cost as old coal which is half the cost of new coal.
    coal has no future as Johnny Rotten would have said!

  11. @nottrampis
    coal has no future as Johnny Rotten would have said!

    What do you mean, would have said? Johnny Rotten is still alive. He could be saying it now. He might say it in the future.

    I think you have confused him with Sid Vicious.

  12. Sorry mate I meant he might have said it about this not that he was dead.although I have heard he has gone quite batty in his old age so possibly not.

    A great shame.

  13. JQ – “Given a tight budget of the carbon dioxide and other greenhouse gases we can afford to emit while stabilizing the global climate, every new source of emissions comes at the opportunity cost of an existing source…”

    The existing prices already sum to an existential crisis. We cannot afford the price of what we have let alone any doubling down.

    Undersea gases could superheat the planet February 13, 2019
    Carbon reservoirs on ocean floor caused global warming before — and could do it again
    Moreover, the phenomenon is a threat unaccounted for in climate model projections. Undersea carbon dioxide reservoirs are relatively recent discoveries and their characteristics and history are only beginning to be understood.

    https :// http://www.sciencedaily.com/releases/2019/02/190213124410.htm
    Climate change increases potential for conflict and violence February 13, 2019

    https :// http://www.sciencedaily.com/releases/2019/01/190123131700.htm
    Climate change tipping point could be coming sooner than we think January 23, 2019
    Vegetation may not be able to continue abating effects of emissions from human activities

    That news triplet looks perilously close to 八卦 Bāguà trigram 坎 (kǎn), gorge.
    Doubling down on that: 易經 I ching hexagram 29 坎 (kǎn), gorge. Other variations include “the abyss” (in the oceanographic sense) and “repeated entrapment”.
    https ://en. wikipedia.org/wiki/List_of_hexagrams_of_the_I_Ching#Hexagram_29

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