Flat White

The dangers of underestimating coal

18 September 2016

6:10 PM

18 September 2016

6:10 PM

According to research commissioned by The Australia Institute if we ban all new coalmines, allowing coal production to fall from 420 million tonnes annually to under 50 million tonnes, we would see a trivial 0.6 per cent fall in GDP. To arrive at such numbers TAI commissioned Victoria University to use a garbage-in-garbage-out analysis with fungible labour, capital and technology. The model’s construction means that any industry’s demise assumes factors of production just slip back to their next best use. Other industries will fill coal’s export hole and renewables will replace it in domestic electricity production.

Under such assumptions we could prove trivial losses from other capital embargos. This would be the case, for example, if we were to pursue another TAI objective and ban all investment in agriculture (leaving the industry to comprise only wine and organics on the non-irrigated slivers of land not reserved as natural parks or aboriginal reserves). Comparable modelling outcomes would emerge from the TAI’s more ambitious anti-mining objective whereby new investment in mining as a whole was to be banned.

In the fantasy world promoted by TAI, this would convert Australia into one vast Singapore with no mining and agriculture but without, of course, Singapore’s unwanted chemical and petroleum refining industries.

The Australia Institute is not alone in its dream world aspirations. These are also the same goals of The Greens and, needless to say, our ABC. On Friday, the ABC vigorously promoted the TAI material, publishing interviews from the Victoria University researcher as well as TAI’s Richard Denniss, who said, “Look the end of coal is nigh”. Counterbalancing this was a lame set of quotes from the CEO of the World Coal Association, who apologised for the industry he represents saying, “It’s incredibly important that we focus on a role for low-emission coal technology”.

TAI’s commissioned work and its promotion is part of the Greens plan to kill off the Adani Carmichael coal mine. Stalled for six years by environmentalists and successive layers of government regulations, this proposal at a cost of $16 billion is gigantic of itself. Moreover, its derailment would deliver a message that Australia does not want or is incapable of creating the conditions under which mining investment – in the first instance for coal – can proceed.

The Greens find warm allies in this goal with others in the politico-bureaucratic regulatory complex.

The Queensland ALP government last week upped the regulatory ante by suddenly requiring the Carmichael mine to apply for a water licence. The ALP Government in Victoria is banning all new gas developments. The Liberals and Nationals are also infected with the anti-mining syndrome. The coalition in Victoria initiated the state’s gas ban and in NSW the Liberals have banned coal seam gas production.

Those promoting such policies are not outright nihilists. They believe that the march of history is against growing food and fibre and digging up stuff from the ground. They see a world in which our basic needs of food, warmth and shelter are easily met and that the future requires different sorts of developments, ones that are highly reliant on brainpower and deliver increased environmental services.

The flavour of this is also seen in Malcolm Turnbull’s “strong new economy” which is “transitioning from the mining construction boom”. That activity is to be replaced by subsidies to science and small business and to the defence industries; these future engine rooms of the economy apparently will not turn the wheels without assistance from the all-seeing government entrepreneur. In this brave new world, government activism is seen to be the key; restoration of the rule of law was cited almost as an afterthought in the Liberal’s manifesto and its application is confined to the construction industry.

Mining accounts for over half Australia’s exports (coal alone is over 15 per cent). Because it is a relatively small employer (only 60,000 directly employed in coal mining) it is easy to underestimate its importance. But the industry’s small employment numbers reflect its productivity and the rest of the economy leverages off this. Modelling can be used to persuade ourselves otherwise but Australia without its mining industry would be vastly poorer than it is today. This is a narrative that is not well presented and fails to resonate even among those not adamantly opposed to private enterprise.

Alan Moran is with Regulation Economics

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