The coal debate: Should the industry prepare for big changes?

With global demand for thermal coal forecasted to decline in the coming years, what does this mean for Australian coal and the players involved? Grattan Institute’s Tony Wood says there may be a lifeline if we start preparing now. Tara Hamid reports.

The drop in global power-sector coal demand resulting from the coronavirus pandemic has once again brought to light discussions around the future of Australia’s coal industry.

With the longer-term prospect for the coal industry already uncertain as more and more countries accelerate their move away from coal-powered energy to meet their carbon emission targets, the industry has also been hit in recent months with slower short-term market demands.

In April, the International Energy Agency (IEA) predicted the effects of the COVID-19 virus would see thermal coal demand decline worldwide by 8 per cent in 2020, the largest drop since the Second World War.

Tony Wood, Energy Program Director, Grattan Institute.

IEA’s 2020 coal market projection was largely influenced by slower demand expected from China and India, the largest and third-largest electricity users in the world, respectively. With Australia exporting three-quarters of its coal, largely to China, India and other Southeast Asian countries, the concern for the future of the industry is the highest it’s been for a long time.

Tony Wood, director of the Energy Program at Grattan Institute, believes while demand for Australia’s coal could eventually recover in the short and medium term, the country is now at a critical juncture that will define the future for coal workers and other players in the industry.

“There are a number of things happening in the world of coal today that make it difficult to forecast what is going to happen,” he tells Australian Mining. “If you look at exports of coal in Australia, they grew very strongly in the first 10 to 15 years of the century, particularly to meet China’s demands. But that demand has been much more flat in recent years.

“Globally, the trend has been for the closure of coal-fired power stations to be more than new ones opening. That trend is probably not going to change.”

Wood is the co-author of Start with Steel, a report published by Grattan Institute in May, which argues that creating a green steel industry might be Australia’s best chance to leverage its rich iron ore resources, renewable energy potential and the large number of carbon workers – a term used in the report to describe those working in carbon-intensive industries, including coal mining.

The term “green steel” is used to describe steel produced using hydrogen generated from renewable energy sources rather than from metallurgical coal. The report states that the opportunity for growing a manufacturing base for green steel in Australia over the next decades could create job opportunities for many of the nearly 55,000 carbon workers, while placing Australia as a major player in steel manufacturing.

“It’s difficult to predict how fast or how slow the world’s demand for coal will decline,” Wood says. “If the world’s demand for coal remains reasonably strong for a while yet, which it may very well do, then we won’t necessarily have to rush into steel production very quickly. We could start now to make sure that we are ready for that eventuality.

“However, if there’s an interval of significant acceleration in the rate of climate change being addressed, then that would mean that the rate of coal consumption and export demand would start to decline more rapidly and we absolutely want to be in a position that we can take advantage of that.”

Wood says the report’s recommendation to prioritise building a strong green steel manufacturing industry based on Australia’s hydrogen production was picked out after closely considering other alternative, including opportunities in green cement, aluminum and ammonia production or even using hydrogen to produce a fuel for the aviation sector.

“None of those has the potential to provide the same number of jobs as steel manufacturing and none of them is as economically viable. The other options are not off the table, but we believe green steel is what we need to start with,” he says.

While iron ore required for steel production is mostly produced in Western Australia’s Pilbara region, Grattan’s report argues that the skills required in green steel are likely to be similar to those currently used in carbon-intensive metal smelting, and these skills overlap broadly with those of coal workers.

The majority of these skilled carbon-workers are geographically concentrated in the coal mining regions of central Queensland and the Hunter Valley in New South Wales.

Grattan’s report points out that if coal mining declines, workers in these “carbon-intensive regions” face more acute social and economic challenges than carbon workers distributed across the rest of Australia and close to metropolitans. So what would a move to steel manufacturing mean for the workers already employed in the coal sector?

“I don’t think they should be worried. I think they should be planning for the possibility of a new future, because this is not something that’s going to happen tomorrow,” Wood says.

“I think when people talk about the coal industry closing down, that is unnecessary doom and gloom. But it’s also true that people who say coal is going to be around forever are unrealistically optimistic about the future of coal.

“Somewhere in the middle is where you need to be and the issues that will determine which it’s going to be, are decisions that will be made in other parts of the world about how long they will continue to buy our coal.”

The need for re-skilling the workforce is something that should be addressed once the eventuality of the shift is realised, according to Wood.

“For example, Newcastle is the world’s largest export port for coal and when you talk to the workers in the Hunter Valley and Newcastle, they understand that not tomorrow, not next week, and not even next year, but over time the demand for coal almost certainly will start to decline.  Therefore they recognise that it’s important to plan for that future now so that when that happens, we can be ready,” he says.

“The workers who are currently heavily employed in the carbon industry, including coal, can transition and find jobs and these jobs will still be well-paid jobs. They’ll probably even be cleaner jobs than working in a coal mine. Newcastle has already experienced this (transition) once before when BHP closed its steel manufacturing facility over 20 years ago.

“So, it’s possible that the region will once again become a major source of steel manufacturing and export. But having a plan is important. And that plan means preparing our workers, preparing our industry and preparing our infrastructure for a different future.”

Wood says even though his team began working on the report back in December before the economy was impacted by the coronavirus pandemic, the argument for a stronger manufacturing sector in Australia has become even stronger since.

“In some ways, there’s a connection between (our report and) the way the government is thinking about what it does to simulate the economy after the pandemic. However, the things we are talking about in this report are not things that can be done quickly. They are things that will be done over quite a long period of time by their nature,” he continues.

“People often ask ‘wouldn’t it be wonderful if Australia could be a major manufacturer?’ Well, it wouldn’t just be wonderful. This could be real. But it needs to be based upon strong economics, not just wishful thinking. And that’s why we argue we should start planning now so that Australia is in the best place to take advantage of this opportunity.”

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