In Economics Explored Episode 108, leading Australian energy and climate change policy expert Tony Wood from the Grattan Institute explains what COP26, the 2021 climate change conference in Glasgow, is all about and why it’s important. Tony discusses what “Net Zero emissions” means exactly, the prospects for nuclear energy, and implications of climate change policy responses for fossil-fuel-dependent economies, such as Queensland’s.
Here’s what Tony had to say about an industry that is very important to Queensland, coal mining, after I asked him how many more decades we’ll be able to mine coal:
We haven’t got very long at all…because, despite what the current resources minister says about, well, Australia will decide what happens to our coal industry, the truth is we won’t. Someone else, our customers will decide what happens to our coal industry. And many of our customers have now signed up themselves to net zero. Whether they’re genuine or not, we will see and that’s the international side of this.
So I think the timing may not be as dramatic as BP would suggest. But you can, I think be very confident that the direction and destination is clear. It’s only a matter of how quickly, and this could accelerate quite quickly.
So what that means is the following. We have about 100,000 people employed in what we’ve described in our work as carbon intensive jobs. Those people, in some cases, at the last election I don’t think voted against action on climate change. They voted against losing their jobs. And the Labor Party, to be fair, did not do a very good job at giving those people a vision of what they would transition to…If you’re a relatively young family, man, most of them are men, often not tertiary educated, and you’re being told your job of $150,000, a year is going to go, and you’ll be paid to work in the tourist industry, you’re not very excited by that.
Right. So that’s the problem. Now, are there some alternatives? Yes, there are. And now’s the time, where we do have the economic benefit of all the coal industry right now in terms of the jobs, in terms of the economic prosperity we enjoy, to use that prosperity to fund the next generation of what’s to come…
It’s not about building more renewable energy farms, wind farms, or solar farms. It’s can we use the comparative advantage of Australia, which is a very big country, with a lot of wind and solar that we don’t need for ourselves, to use that to manufacture materials based upon our mineral resources?
You may recognise that Tony is suggesting what Ross Garnaut has referred to as Australia’s Super Power opportunity, and Tony thinks that’s a real possibility for Australia.
Incidentally, coal prices currently remain at high levels (see the thermal coal one-month and 12-month ahead futures prices in the chart below). There’s still plenty of demand for coal globally. Possibly that will change in future years, although so much depends on whether China, Japan, and other major trading partners follow through on their net zero emissions commitments. (Yes, believe it or not, China has a net zero commitment, but for 2060 rather than 2050.) The Queensland coal industry probably has many good years left, but it would be wise for our state government and local councils to be considering the possibility of what Tony has referred to as coal demand “falling off a cliff almost” in the future.
By the way, the coking coal price chart is below. Coking coal, which is used to make steel, is even more important than thermal coal to the Queensland state budget, which is getting a multi-billion dollar boost from these elevated prices.
Please check out my conversation with Tony, in which my Adept Economics crew member Ben Scott also appears, and let me know what you think about the issues discussed, including policy responses to climate change and the future of coal.
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