Despite the Queensland Government promoting the so-called Clean Economy, our state Treasury is still highly dependent on coal royalties, and the prosperity of our regional economies is highly correlated with coal mining. Coal prices remain at high levels and may deliver Treasurer Cameron Dick some additional budget billions if they don’t fall substantially by the end of the financial year (Figure 1).

On my calculations, coking coal prices have averaged around 300 USD/tonne this financial year to date, compared with the current state budget assumption of 241 USD/tonne over 2023-24. From the 2023-24 State Budget (Paper 2, p. 242), we know “A one per cent variation in the average price of export coal would lead to a change in royalty revenue of approximately $98 million.” If average coal prices remain around 25% above the assumed level for 2023-24, possibly too optimistic an assumption given the trajectory of the coal price, that would mean an additional $2.5 billion in coal royalties this financial year on top of the $9.2 billion already forecast. I will keep a close eye on this in the lead-up to the budget and provide further updates.

Of course, I need to acknowledge the broader context. There appears to be widespread support for decarbonisation in advanced economies, which would imply a very challenging adjustment for Queensland. However, coal (and gas) will likely remain important to the state economy for at least several decades. There are well-known facts about two-thirds to three-quarters of our coal exports being coking coal, essential for steel production for now, and how China and India keep building new coal-fired power plants. For example, according to Reuters, India is adding nearly 14 gigawatts of coal-fired capacity this year. Worldwide, coal consumption is 75% above what it was in 1992, the year of the Rio Earth Summit, which brought in the UN Framework Convention on Climate Change (Figure 2). Greta Thunberg was right that all the fine words of our leaders have amounted to nothing more than “Blah, Blah, Blah.” Consumption of coal is stabilising but is not yet plummeting as rapid decarbonisation advocates would like to see.

The other consideration is growing concerns that the transition to greener electricity will be rocky, with intermittent renewables making supply less reliable, for example. In my latest Economics Explored podcast interview, I spoke with Kansas City-based investment manager Ben Fraser of Aspen Funds, who is betting that the rocky energy transition will bolster demand for energy-dense, reliable fossil fuels. Ben argues:

“we’re at the early stages of an energy crisis that we haven’t seen in a long time. And it’s really going to be driven by a supply shortage of fossil fuels. As we’re making a transition into more green energy, renewable energy sources, that is really being driven by a political narrative that…at its worst is creating a huge gap of understanding of what it’s going to take to make this transition. And [we’re] really putting ourselves in a really bad position from a production and supply standpoint of fossil fuels over the next several decades that we believe is going to be pretty, pretty severe.” [at 14:55] 

“And so we really believe there’s a huge opportunity to get into fossil fuel production. So we’re investing a lot into these operating wells at really good prices.” [at 27:58]

This is not investment advice, but Ben’s thesis is very plausible. It’s probably safe to bet that the world will be reliant on Queensland’s coal for decades to come. And there are too many jobs at stake and too much money to be made, including for the state government, for it to shut down coal production in Queensland. 

This is not to deny we need to respond to climate change over the coming decades. But it probably won’t be by sharply cutting coal consumption anytime soon. Physicist Sabine Hossenfelder is probably right that, globally, we’ll have to undertake risky Climate Engineering as it will end up being the “cheapest way to get us out of this unfolding climate disaster”, as she puts it.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also, please check out my Economics Explored podcast, which has a new episode each week.