Australia’s coal production set to soar but carbon emissions to decline from 2018

The Australian coal industry has taken political centre stage of late, amid assertions that the cost imposition of carbon pricing from 1 July this year will severely impact the sector. However, modelling from carbon analytics firm RepuTex indicates investment in new mines will continue to drive production for the best part of the next decade, with output and resultant carbon emissions forecast to rise to record levels.

“Australia is facing a significantly lower carbon price beyond 2015, when companies will be able to start purchasing offsets from the international market and the price will be partially permitted to float,” said RepuTex’s Executive Director Hugh Grossman.

“When you couple this lower medium-term carbon cost with the government’s industry compensation, RepuTex is not forecasting long-term net liabilities for most coal producers high enough to seriously impact production.

“Demand from Asia is going to be a far more significant factor in impacting production levels, and we perceive that outlook as positive.”

In fact, several major new developments have proven viable investments, in spite of the fact that new mines built post-1 July 2012 are not eligible for industry assistance via the government’s Coal Sector Jobs Package (CSJP).

The nation’s two largest coal mines yet built - Xstrata’s Wandoan Coal Mine and Hancock’s Alpha Project (both in Queensland) - are set to commence operation from 2015. The scale of these operations will contribute to a steady rise in both coal sector production and greenhouse emissions.

However, the scheduled closure of ageing mines, such as Rio Tinto’s Blair Athol mine, New Hope’s Jeebropilly and the Isaac Plains joint venture by 2018, along with a further five significant mines (Foxleigh, Mount Owen, Moorvale, Gregory Crinum and Mount Thorley) scheduled to close by 2020, will lead to a slowdown in emissions from 2018 onwards.

“Technological advancements at new operations ensure such projects generally present lower carbon emissions profiles and therefore lower liabilities relative to older assets. This is despite those newer mines not receiving government carbon compensation,” said Grossman.

RepuTex’s analysis shows that older mines exhibit very high average emissions intensity, while new projects are setting the standard for emissions levels, with the new Wandoan and Alpha projects projected to operate at significantly lower emissions intensity.

“This high operating emissions intensity for ageing coal assets will equate to a high gross carbon cost from commencement of the Carbon Price Mechanism in July 2012,” Grossman continued.

“However, the high level of government compensation via the CSJP ensures their total liability will be relatively low, allowing them to continue producing.”