Now is the perfect time to increase coal royalties to fund Australia’s energy transition

The usual trade-off between maximising revenue while protecting industry’s long-term future no longer applies

That’s the headline and standfirst for my latest piece in The Guardian, looking at revenue options for the coming Queensland Budget. It’s over the fold


After dealing with multiple natural disasters, and facing the need for huge investment in an overloaded electricity system, it’s not surprising the Queensland government is in search of extra revenue ahead of next week’s budget. The obvious source, already flagged by the treasurer, Cameron Dick, is an increase in royalty rates for coal.

These rates, set on a sliding scale according to the price of coal, have been frozen for the last 10 years, as promised by the Newman LNP government after a small increase in 2012. With the 10-year freeze now expired, resources groups are lobbying intensely for no changes to the existing regime. But there is a logical case for increasing royalties on coal, which is currently trading at spectacularly high prices.

For most commodities, the high prices we are now observing would be a signal of favourable prospects. For coal, it’s the opposite. World coal consumption peaked in 2014, and is predicted to decline steadily over the next decade. Many countries have already ended the use of coal to generate electricity, or will do so in the next few years. Metallurgical coal, used in making steel, will last a bit longer. But the coal-based blast furnace technology is already facing the prospect of replacement by coal-free techniques using renewable hydrogen.

While coal demand has flattened out, new investment in coalmines has dropped far more rapidly. Investors can see that there is no long-term future in coal. Witness BHP’s inability to sell its Mt Arthur coal mine, which it announced on Thursday would close in 2030. Meanwhile, global financial institutions have abandoned the industry, pledging not to finance or support new coalmine projects.

In these circumstances, there is only limited supply response available to meet temporary increases in demand, like those arising from the strong economic recovery after Covid, followed by sanctions imposed on Russia. The result is the sharp increase in prices we have seen recently.

Coal is on the way out, but a good deal of money can be made in the meantime, while high prices last. Most major corporations, with a long-term future in mind, have abandoned the industry. Those that remain need to reap profits fast, which is why they are more determined than ever to resist any increase in taxation.

But the same analysis applies to royalties, the price paid by miners to the public as owners of the coal resource. Usually there is a trade-off in setting royalty rates, between maximising revenue while protecting the long-term future of the industry. However, this no longer applies. Investment in new coalmines is in long-term decline, whether or not royalty rates are increased.

Queensland’s focus must be on gaining additional revenue while export demand remains strong and using it to transform our energy system. The transition to a carbon-free energy system will require big capital expenditures. In particular, public investment in carbon-free energy through CleanCo needs to be greatly expanded.

As well as decarbonising our own electricity grid, the government needs to plan for the future of regions which currently rely on coal exports as a major source of employment. Many of these are well suited to produce solar, wind and hydrogen.

From the government’s viewpoint, the impending decline of coal is both a challenge and an opportunity. The challenge is the need for a transition to a future beyond coal, both as a source of energy in Australia and as a major export commodity. The opportunity is to use the current period of high coal prices to finance the transition to a decarbonised economy

Monday Message Board

Another Message Board

Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

I’ve moved my irregular email news from Mailchimp to Substack. You can read it here. You can also follow me on Twitter @JohnQuiggin

I’m also trying out Substack as a blogging platform. For the moment, I’ll post both at this blog and on Substack.

Monday Message Board

Another Message Board

Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

I’ve moved my irregular email news from Mailchimp to Substack. You can read it here. You can also follow me on Twitter @JohnQuiggin

I’m also trying out Substack as a blogging platform. For the moment, I’ll post both at this blog and on Substack.

The three party system in France and Australia (crosspost from Crooked Timber)

For a while now I’ve been arguing the political crises in the developed world can be understood as the breakdown of a two (dominant) party system in which power alternated between hard (Thatcher) and soft (Clinton) versions of neoliberalism (or market liberalism), with two sides drawing respectively on the votes of the racist/authoritarian right (Trumpists) and the disaffected left (environmentalists, socialists/social democrats etc) who had nowhere else to go, even if they were entirely unsympathetic to the market-liberal version of capitalism.

As the failures of neoliberalism have become more evident, there’s no longer enough support to maintain two neoliberal parties, so the natural outcome is a three-party system, with Trumpists, neoliberals and a left coalition, all of roughly equal size. In political systems set up for two parties, this creates a lot of instability.

When I looked at this in 2016, it seemed that the biggest losers were soft neoliberal parties, typically nominally socialist or social democratic, which had embraced austerity in the wake of the GFC. Prime examples were PASOK (which gave its name to the process of Pasokification), the French socialists under Hollande and the Dutch Labour party. More recently, though, hard neoliberal parties have also been replaced by the Trumpist right (as in France) or simply swallowed by Trumpism, as in the paradigm case of the US Republicans.

Following recent elections in France and Australia, I thought I’d take another look

Read More »

Sandpit

A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.

To be clear, the sandpit is for regular commenters to pursue points that distract from regular discussion, including conspiracy-theoretic takes on the issues at hand. It’s not meant as a forum for visiting conspiracy theorists, or trolls posing as such.

Monday Message Board

Another Message Board

Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

I’ve moved my irregular email news from Mailchimp to Substack. You can read it here. You can also follow me on Twitter @JohnQuiggin

I’m also trying out Substack as a blogging platform. For the moment, I’ll post both at this blog and on Substack.

Are metropolitans “real Australians”?

It’s become customary in Australian politics to define some subset of the population as “real Australians” whose views and concerns deserve special attention. In the wake of the election outcome, I wrote a somewhat tongue-in-cheek piece for Crikey, imagining how this frame might be applied to metropolitan Australians. It’s over the fold


Contempt for metropolitan Australians a dangerous move for political parties

While both major parties treated urban Australians with a degree of disdain, it was the conservatives who paid the highest price for it this time around.

John Quiggin

May 25, 2022

(Image: Mitchell Squire/Private Media)

Comparing the discussion of the 2022 election with previous post-mortems, one standard element is notable in its absence. The discussion has focused on the loss of the Liberal heartland, the concerns of women voters and the fact that climate policy mattered after all; what is missing is the ritual anointing of one group of voters (rural and regional Australians, people of faith, the residents of Western Sydney and so on) as the “real Australians” who have received inadequate respect from the political class and whose concerns must be attended to.

A look at the post-election map suggests that this year’s candidate group may be called “metropolitan Australians” — that is, residents of Australia’s state and territory capital cities. On current indications, the Liberal Party could hold as few as 10 to 12 metropolitan seats, less than the combined total of Greens and urban independents. 

It is easy to imagine the kind of thing that might be written about these electorates if their inhabitants were seen as “real Australians”:

Metropolitan Australians are sick of being scorned and derided for everything from their coffee preferences to their over-education. Their concern about climate change is routinely mocked as a religious orthodoxy, often by commentators who claim to be concerned about religious freedom for “people of faith”.  Although their income taxes and GST supply the great majority of government revenue, they are regularly treated as parasites living off the relatively modest amounts paid by mining companies in royalties and company taxes. While the struggles of other Australians are treated sympathetically, young metropolitans, unable to enter the housing market, are blamed for spending their money on smashed avocado — or just for not having parents wealthy enough to support them. 

While both major parties have treated metropolitan Australians with disdain, the conservatives have been far worse, and have paid a higher price. When then deputy prime minister Michael McCormack described millions of hardworking metropolitans as “woke, inner-city greenies”, no one batted an eye. By contrast, the use of terms like “redneck” and “bogan” for rural and regional Australians has resulted in instant cancellation; indeed, Anthony Albanese was criticised on the basis that random residents of his electorate had used them.

On Saturday, however, metropolitan Australians found their voice. They are sick of being put down and ignored by the elite rural and regional minority who have held an unfair share of political power, and they are not going to take it any more.

Of course, this kind of thing is just as nonsensical as any attempt to divide us into “real Australians” and “the rest”. But if the Liberal Party ignores the results of the election or, worse still, follows the lead of Barnaby Joyce and the National Party in denouncing city-dwellers, they will face immense difficulties.

Historically, independents and Greens have found it hard to get into Parliament. But once elected, their major party opponents have found them hard to remove. Indeed, no Green candidate elected in a general state or federal election has subsequently been defeated (some byelection winners have lost their seats at the next general election). Independents have also held office for long periods.

Given this knowledge, the Liberal Party might decide to give up on winning back the seats of Greens and independents and focus on its conservative base in the hope that the inevitable difficulties of government will produce a swing away from Labor. But this would be a desperate strategy. Based on results so far, achieving a Liberal majority solely by winning seats now held by Labor would require a two-party-preferred vote of 54-46 — that is, a swing of 6%. In recent history, only the 1996 and 2007 elections have come close to this.

The Liberals could form a minority government with a smaller swing. But unless they came very close to an outright majority, they would be forced to deal with the same metropolitan independents they have treated with contempt so far. 

The alternative strategy — of breaking the coalition with the Nationals and trying to regain the ground they have lost in metropolitan Australia — is the more promising in theory. But the handful of remaining metropolitan Liberals are a minority in their own partyroom. In any case, most are outer-suburban conservatives, more attuned to their regional neighbours than to the urban majority.

We are unlikely to see the “metropolitan Australians” trope in our political commentary. But in a country as urbanised as Australia, and with traditional party allegiances breaking down, it is the big cities where future elections will mostly be decided.