Energy, environment and exports: key questions for the new Australian Government

JP Casey 5 August 2019 (Last Updated August 1st, 2019 11:36)

Following the surprise victory of the Liberal-led Coalition in the ‘climate change election’ of May 2019, questions have been asked about what the new government’s impacts on the country’s mining industry will be, from cutting energy prices to awarding new permits. JP Casey considers five pressing questions for the government about the future of Australian mining.

Energy, environment and exports: key questions for the new Australian Government
Australian Prime Minister Scott Morrison (right) pictured in 2018. Credit: G20 Argentina

Will the Coalition ensure low energy prices?

Ahead of the election, one of the Liberal-led Coalition’s core promises was to lower Australian energy prices, which remain some of the highest in the world, through a greater reliance on what it called “reliable power”, which often translates to fossil fuels, and thus a boon for coal mining.

However, Australia’s energy history is muddled; the closure of the Northern and Hazelwood coal-fired power stations in 2016 and 2017 respectively was responsible for more than half of the 130% increase in energy prices on the country’s east coast between 2015 and 2017. This increase caused some to call for greater investment in renewable power to completely remove coal from the market, and others to double down on coal-fired stations, to prevent exactly the kind of sudden closures that triggered the dramatic price increases.

While the Coalition is broadly pro-coal, many are uncertain as to whether the group’s persuasion will actually deliver the reduction in energy prices, with many bodies, including thinktank the Grattan Institute recommending a move towards renewables to reduce energy prices.

How will the government balance coal and renewables?

In line with its interest in keeping energy prices low, the Coalition scrapped a national carbon tax in 2014. It has therefore presided over a gradual increase in harmful emissions, with Australia responsible for 1.8% of the world’s greenhouse gas production, despite housing just 0.3% of its population.

The party has also received significant backing from fossil fuel groups, with Market Forces reporting that companies involved in fossil fuels donated A$520,645 to the Liberal Party between 2017 and 2018. This was more than the A$507,148 donated to the rival Labor Party, and part of a 32% increase in the total funds donated to Australian political parties by the fossil fuel sector. The hardline Coal Council of Australia has also supported the Coalition and its election victory, and has called on the party to protect the interests of coal workers over the next few years.

However, the Coalition has not abandoned renewables entirely, with the group’s Fair Deal on Energy promising investment such as backing for the Snowy 2.0 and Battery of the Nation hydroelectric projects. These form key parts of the Coalition’s broader interest in delivering a reliable sources of power to keep energy costs low. This priority has driven the group’s policies thus far, and while the Coalition may not be pro-coal for coal’s sake, this pragmatic interest has driven its members to support coal over intermittent renewables. It remains unclear, however, if the Coalition will reappraise the stability of renewables, and encourage greater investments in clean energy.

Will big projects get the go-ahead?

A number of significant mining projects have been proposed to deliver the reliable energy the Coalition is so committed to, and replace the production lost by closures such as Northern and Hazelwood, with Adani’s Carmichael mine headlining the new developments. The Indian-owned mine is set to be a massive operation, with an estimated annual coal production of 27.5 million tonnes (Mt), but despite a range of approvals from the Queensland Government, the mine’s status remains unclear following questions about its environmental impact and intense local resistance.

Questions have also been raised about the mine’s economic benefits, with the A$2bn costs of the project only barely offset by estimated returns of A$160m a year once operations begin, and this estimate relies on the mine being profitable and productive for decades, at a time when the world is increasingly moving away from coal power. There has also been confusion surrounding benefits such as the jobs created in the construction and operation of the mine, with Adani and local officials disagreeing on both short- and long-term employment figures, severely undermining the credibility of Adani’s claim that the project will generate 8,250 new jobs in the construction and operation of the mine.

With a number of separate but related issues, covering ecological damage to aboriginal rights, economic benefits to export potential, the government’s eventual decision on the Carmichael project could set the tone for future large-scale mining operations in the country.

How will the government diversify the mining sector?

The government will face a relatively new challenge with regards to the mining and processing of new minerals, as technological developments place a greater value on minerals previously considered unimportant. The World Bank reported in 2017 that demand for metals such as aluminium and nickel, key components in solar panels and advanced batteries respectively, could increase by up to 1,000% by 2050.

This shift could have a particularly significant impact on Australia, where mining is a key economic driver, responsible for 15% of the country’s GDP in 2017, according to a Deloitte report. A report from the Australian Government found that the country’s year-on-year economic growth is expected to fall from 3.2% in 2018 to 2.6% in 2024, so diversifying the products of the established Australian mining sector will be of importance to the new government.

With this in mind, several new mining projects are in the planning stages ahead of future production. Queensland will see the expansion of the Tianqi and Talison Lithium-owned Greenbushes project, already the world’s largest lithium mine, to annual production figures of 2.3Mt of lithium concentrate from 2021. Quantum Graphite has also secured permission to recommission the Uley graphite mine in South Australia, and expects to produce up to 60,000 tonnes of graphite a year, a key component in lithium batteries.

There is optimism that the government’s eagerness to award mining permits will encourage a diversification of the sector, but much of the conversation around the Coalition’s mining plans have centred on the Carmichael project and efforts to cut energy prices, so there is also the possibility of these projects being postponed or sidelined.

Can exports remain profitable?

In addition to providing employment and wages for domestic workers, the mining sector is a significant part of Australia’s exports, selling 208of coal alone overseas in 2018, worth A$26bn. However, China is the destination of many of these exports – purchasing 81% of Australian iron ore and 22% of Australian metallurgical coal according to the government’s quarterly report – and there are concerns that changes in Beijing will undermine Australian exports.

The quarterly report notes that China’s metallurgical coal imports fell by 7% to 65Mt between 2017 and 2018 as the country looks to take advantage of recycling, rather than coal, in the steel production process. The future of Australian iron ore is even more concerning, as predicted increases in iron ore exports are not reflected in increases in export value due to rising operating costs. Australian iron ore exports are predicted to increase from just over 600Mt in 2013-14 to 900Mt in 2023-24, but the value of these sales is expected to fall from close to A$90bn to just $60bn over this period.

This is an issue without an obvious answer, as trade profitability is often determined as much by the exporting country as the importing country. Without an ability to influence policy in countries like China and India, which have historically been eager to import Australian minerals, it is unclear how the Australian Government will deal with this potential decline in value.