Australian politics, society & culture


Land of the long black cloud

Cover: September 2010September 2010Medium length read

“Join us, won’t you, on our coalminers’ tour of exotic Mongolia, and grab a slice of the world’s fourth-biggest coal reserves. En route to the Gobi, we’ll explore the fleshpots of Ulan Bator together, starting with the national mining conference and a networking dinner. Next it’s a five-star ‘boot camp’ where you’ll be coached in Mongolian negotiation etiquette: what to wear, who to wine and dine, the vodka shots to expect when the deal is done. At $1000, this is a once-in-a-lifetime opportunity and, as a special offer, since this is our first Mongolian package, we’re waiving our usual $190-per-hour customised tour service. So come and discover Mongolia’s coal with us.” OK, I’m paraphrasing, but that’s the sort of outbound ‘coal tourism’ now being run by the Australian government, and enthusiastically embraced by our coal industry. It’s the little-heard B-side to Australia’s coal rush.

Most of us think of Aussie coalmining as a local issue, and why not? Coal exports have doubled since 1992 and are set to do so again by 2020. The consequent scars across the Hunter Valley and central Queensland are visible from space, as anyone with Google Earth can see. Whether it’s the 23% of our exports that coal provides or the 81% of our electricity it fuels, it’s all about mining here in Australia. We’re not encouraged to think too deeply: about the profits that flow offshore to the predominantly foreign owners of our mines, about the emissions greater than Australia’s that our coal generates offshore or about the global coal addiction we feed more than any other nation by providing nearly a third of the world’s traded coal. It suits us to focus on the Australian story of regional development, jobs, royalties, competitive economic advantage – what happens here, ‘on the ground’.

So it will surprise many to learn that Australia may soon mine more coal in other countries than it currently exports. With our fingerprints all over expanding production on every continent, we’re the coal trade’s chief recruiter, not just its biggest exporter. The main aim of recruitment is to increase global production to keep coal cheap and accessible; the big perk for new recruits is that their coal exports will be immune from whatever the global community comes up with to succeed the Kyoto Protocol. To many people this sounds implausible against the steady drumbeat of “inevitable clean energy revolution”. But then most perfect crimes sound implausible until perpetrated, and mining and exporting coal are becoming the perfect environmental crimes. To understand why coal isn’t dying a natural death, even as the world prices carbon and takes on tighter emission targets, look closely at the industry.

Whereas developed countries once accounted for roughly half of global coal consumption and production, today they account for around one quarter. Now, developing countries produce and consume the lion’s share, and account for 97% of the projected growth in demand. Whether or not they have carbon prices or ambitious emission targets, coal consumption is levelling off in developed countries. The action is in developing nations looking to supply electricity to the more than 1.5 billion people going without, expand steel-making with coal-hungry blast furnaces, and satisfy insatiable Western demand for cheap manufactured goods. Crucially, because per capita emissions in developing countries are so low, they won’t be forced to reduce their total emissions in any new climate deal. They might agree to targets that involve improving emissions-intensity (the ratio of emissions to GDP), but this will slow emissions growth rather than reduce emissions, leaving room for literally thousands of new coal-fired power stations and steel mills. That adds up to a big increase in global coal consumption.

This is why renowned climate scientist James Hansen, of the NASA Goddard Institute for Space Studies, is now saying that “agreement to phase out coal use except where the CO2 is captured is 80% of the solution to the global warming crisis”. If the world releases the carbon stored in coal reserves into the atmosphere, there’s no chance of returning the climate to safe territory. And since the vast majority of increased coal use is occurring in countries subject to no total emissions-reduction target, the chance of them ever capturing and storing the CO2 through geosequestration is virtually nil. As this reality dawns, some are starting to wonder whether a multilateral deal to phase down coal use is as important as a post-Kyoto deal on emission targets and timetables.

The only current constraint on coal consumption is supply. The world is using around 6 billion tonnes of hard coal annually (and nearly one billion tonnes of lignite). Of this, China (2.7 billion), the US (1.1 billion) and India (0.5 billion) produce around 70% – roughly what they consume. Contrary to the popular myth that they already depend utterly on Aussie coal, both India and China produce the vast majority of their own, and have sufficient reserves to do so for decades. Yet, as rapidly as these countries expand production, they’re struggling to keep up with demand, which is spilling over to the seaborne coal trade dominated by Australia. As a result, coal prices are rising; coal exporters aren’t worrying about CO2 because it doesn’t count in their own national tally; and most importers, because they are developing countries, have lots of room to increase CO2 emissions. It’s a win–win situation for buyer and seller, but not for the environment. For any country willing to dodge the moral hurdle of fuelling global coal addiction in the face of climate change, that’s an enticing opportunity.

Australia has seized it with both hands. We’ve shown it’s possible to get rich quick through increased coal exports – while masquerading as a leader in the global climate change debate. Still, as the world’s largest coal exporter, on track to export roughly as much CO2 in coal as Saudi Arabia does now in oil, Australia needs company in the coal trade in order to look less conspicuous. Moreover, a booming coal trade helps to legitimise expanding reliance on coal among the big producers (India, China and the US) and big importers (such as Japan, South Korea, Germany and Taiwan). The fewer countries buying and selling coal, the worse they seem, hence the recruitment drive – ‘Big Coal’ wants more from its veterans, and needs new players.

As enticing as exporting coal with impunity might sound to some, relatively few countries have significant coal reserves in excess of their own needs and can increase exports in a hurry. Neither China nor India is in a position to expand exports. Some Asian countries that have been net exporters, such as Vietnam, are being forced to set aside more coal for domestic use, and look set to become big net importers. The American coal industry is doing what it can to prop up the coal trade – US exports have doubled in the past eight years – but it is unlikely to recapture the pre-eminent position it held in the early 1980s. Domestic American coal demand has stagnated thanks in part to increasing opposition to coalmining and coal-fired power (over a hundred proposed coal-fired power stations have been shelved in the last few years). Even so, American producers will have their hands full supplying over 600 domestic power stations for many years yet.

Aside from Australia, the surprisingly few countries ‘stepping up to the plate’ are a motley band indeed: some are long-time coal traders such as Indonesia, Russia, South Africa, Colombia and Venezuela; others, such as Mongolia, Mozambique and Botswana, are fresh recruits. Along with political instability, terrorism and fairly ordinary scores in global corruption rankings, most boast infrastructure bottlenecks that put ours to shame – issues to bear in mind next time you hear a coal baron threaten to move his investment to any of these countries to avoid sovereign risk in Australia. A closer look at expanding coal production in these countries reveals another common thread: Australian involvement. Mercenaries dressed as missionaries, we’re there evangelising everlasting economic salvation through coal to anyone letting us through the door.

The multinationals that mine most of Australia’s coal are all at it (BHP Billiton, Xstrata, Rio Tinto and Anglo). BHP Billiton can take credit for about 50 million tonnes of coal mined per annum (mtpa) in South Africa, another 10 mtpa in Colombia, and it holds a 75% stake in an Indonesian coal project that may ultimately produce 15 to 20 mtpa. It’s also one of a short-list of companies keen to help the Mongolian government mine that country’s most lucrative coal deposit. But, much as we might still think of BHP Billiton as “the Big Australian”, today it’s really just another homeless coal pirate – a majority foreign-owned multinational using Australia as a safe haven from which to run its operations. It’s when you look beyond the multinationals that dominate coalmining here that Australian’s coal evangelism gets most interesting.

Against a tide of predictions about a “carbon constrained global economy”, small- to medium-sized Australian companies are wading into the coal trade as fast as they can – many diversifying into coal rather than out of it. Instead of competing in the crowded Australian market, their explicit intention is mining coal in developing countries for export. Riversdale Mining, for example, recently announced deals with Chinese and Indian steelmakers to mine over 30 mtpa of coking coal in Mozambique. Using deposits there as a springboard, the company aims to become the world’s biggest coking coal exporter. Another good example is Tigers Realm Minerals, set up by the former Oxiana boss Owen Hegarty. Whereas copper and gold were once his focus, it’s now largely about coal. An initial public offering is coming and within three years Tigers Realm Minerals is reportedly targeting 5 mtpa from other countries around the Pacific rim. Its list of joint ventures, MoUs and development plans already cover Columbia, Indonesia, Russia and Chile.

Then there are the contractors, led by Leighton Holdings, which just recently sealed a billion-dollar deal to mine 6.75 mtpa for the next 20 years in eastern India. Leighton understands that you needn’t own the coal to make a fortune mining it; as governments in developing countries are sometimes keen to retain ownership, contract mining is often the quicker path to profit. In all, Leighton has contracts to mine some 80 mtpa of coal in other countries – which will generate as much greenhouse pollution as Victoria, South Australia and Western Australia combined. Leighton moans about a resources tax casting a “black cloud” over the sector back home, but makes no mention of the black cloud it casts internationally. The company does it all – runs the mines, builds roads, railways and port infrastructure, and even does catering. Wherever you find rising coal exports you’ll probably find Australian involvement, whether it’s Orica supplying explosives, Sedgman building coal-handling facilities, Ausenco designing coal terminals, Mincom designing software to make the process run smoothly or the people from ITS Global providing amorphous public relations.

To witness our coal evangelism in full swing, take a look at Indonesia. Not so long ago, the biggest threats to Borneo’s rainforests were illegal logging and palm-oil plantations. Today, the timber industry is not just being eclipsed by coalmining, the timber companies are becoming coal companies in what has become a coalminer’s picnic. And if you go down to the woods today in Kalimantan, the big surprise is the extent of Australian involvement. Leighton leads the charge with contracts to mine over 50 mtpa in Indonesia at eight different locations. Within three years, Kangaroo Resources hopes to be mining 10 mtpa from eight mines of its own; a Straits Resources subsidiary envisages production of 20 mtpa in the same region; and White Energy wants to upgrade 15 mtpa of low-rank coal into briquettes for export. Between Australian-owned mines and contract mining, Australian companies may soon be digging up more than one-third of Indonesia’s coal exports.

To see our coal evangelism beginning to take root, go to Mongolia. A host of firms are braving the legendary pollution of Ulan Bator and temperatures of –50°C to dig up “the closest coal to China”. Leighton got in earliest because its contract-mining approach ruffled few political feathers. With the company on track to mine 30–40 mtpa in the next few years, the executive who endured frostbite in the early days wears it like a badge of honour. Leighton claims that its mounting contracts in the country’s north and south should mean it will account for around 57% of Mongolian coal production by 2013. In its wake, Aussie coalminers such as Aspire Mining and Hunnu Coal are beating a path to Ulan Bator, where a new pro-mining government recently abandoned a Mongolian mining profits tax. Thanks in part to Australian companies, Mongolian coal exports are doubling every two years and could reach 60 mtpa by 2015.

It’s the same story elsewhere. In Botswana, Aquila Resources wants to mine 20 mtpa, Aviva another 12 mtpa; in South Africa, Coal of Africa is targeting production of 18 mtpa and Continental Coal 9 mtpa; in Madagascar, Straits Resources hopes for at least 3 mtpa; in Tanzania, Atomic Resources 2.5 mtpa; and Leighton is now eyeing Africa as well. Over in Canada, Coalspur Mines plans to develop what it says could be “one of the largest export thermal coalmines in North America”. No country with coal surplus to its own requirements seems safe from the recruitment drive – not even “100% Pure” New Zealand. With over 6 billion tonnes of recoverable lignite, it now calls coal “sexy” and fancies itself as the Saudi Arabia of the South Pacific. Its government recently claimed that liquefying coal could meet its transport needs for over 200 years, and it wants more of the global coal trade. Again, Australian companies are obliging. Leighton and Downer EDI are mining coal for the state-owned Solid Energy, and GTL Energy is helping it briquette coal for export. Two other Australian companies, Bathurst Resources and Galilee Energy, have announced plans to expand their coal production in New Zealand to around 3 mtpa.

Add it all up, and, if you still count “the Big Australian” as Australian (which it seems to), we could soon be mining close to 300 million tonnes of coal annually in other countries. That’s more coal than Australia exports today, and adds over 800 million tonnes of CO2 to the atmosphere each year. Of course, Australia isn’t alone in digging up other people’s coal. China, India and the US are all at it, as are the big coal importers such as Japan and South Korea. Many of them are digging up coal here in Australia, with our enthusiastic encouragement. But there’s a difference. They are looking to satisfy their own demand – their addiction is horrendous but the coal is mainly for their ‘personal use’. We’re digging up coal to feed the addiction of others, which surely puts us in a uniquely reprehensible category. The coal trade now resembles a macabre game of musical chairs in reverse, with no one adding chairs quite like us.

Of course, there’s nothing surprising or illegal about Australian companies wanting to cash in coal opportunities. What’s at issue is whether our national interest is served by them digging deeper, at home and abroad, especially while there are no integrated commercial scale ‘clean coal’ plants operating anywhere in the world. With Australia’s export basket full of carbon you’d think that as the principal source of trade promotion and trade policy advice to government, Austrade might urge some caution. After all, the stated aim of Brand Australia is to have us “highly regarded as a global citizen” and position us as a “future-focused nation”. Under the circumstances, it seems prudent to hold back on coal until there is some prospect that coal might be used cleanly.

Instead, Austrade has become a veritable travel agency for coalminers, offering coal-focused mining missions and events – effectively package tours – to, among others, South Africa, China, India, Mongolia, Vietnam, Kazakhstan, Colombia and Indonesia. There is a constant stream of PR encouraging Australian miners offshore, and promoting Australia’s coalmining prowess internationally. On the basis that “very large increases in supply are required”, Austrade doesn’t distinguish at all between coal and other commodities. Carbon capture and storage doesn’t enter the equation – as far as Austrade is concerned, Australian coalmining is already “environmentally advanced”. Over at AusAID things have improved somewhat since the 1990s, when the Keating government had no qualms kicking in $61 million towards a coalmine in Piparwar in eastern India. At the time, it was Australia’s biggest “aid” project. Today, it’s more subtle and modest but there is still no sense that hooking up developing countries to coal addiction is wrong. For example, AusAID contributed $100,000 to an infrastructure plan being developed by the World Bank for Mongolia’s main coal-mining region. As part of that initiative, Mongolian officials were given a tour of the Hunter Valley coal belt. “Tavtai moril! (‘Welcome’ in Mongolian) – come down under and see how it’s done.”

At the political level, Australia makes a virtue of its coal-digging abroad. Back in 2008, for example, trade minister Simon Crean took time out from the Beijing Olympics to fete Crest Mining’s plans to help dig up 800 million tonnes of coal in the semi-autonomous province of Inner Mongolia as part of China’s plans to double production in the region. Specifically citing coalmining, foreign minister Stephen Smith recently called the breadth and depth of Australian commercial engagement in Africa “impressive”, as if new, dirty coal-fired power stations are a good thing so long as they happen elsewhere. And just as it was preparing to propose a resources tax here, it seems likely that the Australian government was successfully lobbying against the imposition of such a tax in Mongolia – in part to protect Australian coal profits there. This is all bolstered by the largely Australian-led effort to portray carbon capture and storage as a viable solution to coal use.

As the dust that was kicked up in Copenhagen comes to rest on an inconsequential accord (and shelved emissions trading schemes), the prospect of effective global action to combat climate change seems bleak. As usual, Australia is pointing fingers, using the inaction of others as our excuse. Yet, if we checked the mirror instead, we’d see a country that, in spite of years of talk, produces greenhouse pollution equivalent to nearly 600 mtpa of CO2 with projected increases as far as the eye can see. We’d see a country that plans to double its coal exports, which already generate over 700 mtpa of CO2; a country set to generate a similar amount of CO2 by digging up coal elsewhere in the world.

If we also looked over our shoulder, rather than pointing fingers, we’d see who’s using us as an excuse, and whose bad example we’re propping up through our starring role in the global coal trade. Along with the poorer nations we’re recruiting, we may be surprised to see the very countries at which we are so used to pointing – China, India, the US, and all of those countries that depend on a growing coal trade to legitimise their current course. We’d see the long black cloud that Australia casts over an imperilled planet.

About the author Guy Pearse
Guy Pearse is a research fellow at the Global Change Institute, University of Queensland, a former political adviser, lobbyist and speechwriter, and the author of High & Dry and Quarterly Essay 33, ‘Quarry Vision’.

Coalminers' world tour
Phillip Adams and Guy Pearse in conversation on Late Night Live