The noose is tightening on coal and the Morrison Government

Japan's New Prime Minister announced last week that Japan would aim to achieve net zero carbon emissions by 2050 joining a range of other major countries around the world that have made similar pledges. This is part of a concerted effort by the UK Government to firm-up the nature of the emission cuts that countries have signed up to under the Paris Climate Accord in advance of the next United Nations climate change conference to be held in November 2021.

Plus if Joe Biden manages to win the US Presidential election on Tuesday (their time) then that will be another country pledged to achieve net zero emissions by 2050

Last week I spoke to Jake Sturmer, the ABC's Japan Correspondent (and former environment correspondent, so he knows the climate change beat well) about how Japan might manage to meet this target and its implications for Australia. I also pointed out that this Japan was not alone, with two of Australia's other main customers for thermal coal - South Korea and China also committing to net zero emissions, by 2050 for Korea and 2060 for China. The end result aired (very briefly) on ABC TV news and the AM radio program on 28 October . See here: https://www.abc.net.au/radio/programs/am/am/12800278 (advance to 21.20 time).

Jake did a pretty good job of condensing the issues we discussed into a short grab. In the news clip I was cited as saying Australia needed to pivot and pivot hard out of coal and develop new export industries. Here's the longer explanation for why.

The reality which the Australian Federal Government is extremely reluctant to confront is that much of the world has no great love or attachment to coal as an energy source. They'd prefer to use something less polluting and more flexible, except for the fact that historically it has been cheaper than alternatives. However the difference in cost between coal and cleaner alternatives (with the exception of gas that hadn't declined in cost except in the United States) has narrowed considerably over the past decade such that the decision to go with renewables imposes a relatively modest economic penalty if you're displacing existing plant. While if you're building new power generation equipment, in many geographies wind and solar will actually be cheaper than a new coal fired power station.

Furthermore countries can now very clearly see that within the next ten years the technologies to firm-up renewables supply to align with demand and also make vehicles emissions free - batteries and hydrogen - are likely to have declined substantially in cost. For passenger motor vehicles there's a very good prospect electric vehicles will represent a lower cost option (taking into account operating costs) than conventional oil-fuelled vehicles.

The prospect of making and selling lots zero-emission equipment to replace the old fossil fuel plant and equipment represents an extraordinary multi-trillion dollar economic opportunity. Europe, China, Japan, South Korea and also the more dynamic parts of the United States, particularly California, all recognise this and are keen to position themselves to grab as big a slice of it as they can.

It was interesting to observe that in Japanese Prime Minister Yoshihide Suga's speech he explicitly notes this change in the economic calculus:

“Responding to climate change is no longer a constraint on economic growth. We need to change our thinking to the view that taking assertive measures against climate change will lead to changes in industrial structure and the economy that will bring about great growth.”

In the past you could easily dismiss this as just grandstanding for the cameras while the follow-through on the rhetoric was sorely missing. That is still a genuine worry. Japan bizarrely continues to build the odd new coal power stations even though the existing ones have poor utilisation (just like China stupidly does). And their export promotion financing of new coal power stations in developing nations has been appalling.

However, we can now see demand for thermal coal imports declining in the near term in not just Japan, but across the whole of Asia - this is structural, not due to COVID-19. This is a massive turnaround from where we were a few years ago that I don't think has sunk in to many policy makers and commentators. Back in April the Federal Government's economics bureau for the minerals and energy sector released its quarterly publication that tracks output and exports for this sector and makes forecasts of future output and exports - Resources and Energy Quarterly - March 2020. In this publication it provides a 5 year forecast of thermal coal imports that makes for grave reading for Australian coal mining enthusiasts (oddly they dropped the 5 year forecast in their subsequent quarterly updates). While it has been apparent for a very long time that Europe's demand for thermal coal was in permanent and dramatic decline, the declines apparent in many parts of Asia would have come as a major surprise to many followers of the coal market if we just travelled a few years back in time.

Thermal Coal Imports - 2019 actuals and forecasts to 2025 (millions of tonnes)

Many of the promoters of the Australian coal industry used to tell us that while demand for thermal coal imports in Europe was in decline and North Asia's demand would grow slowly or stagnate, it would be overwhelmed by growth in demand from India and South-East Asia.

That clearly isn't happening.

And now we have South Korea, Japan and China - who make up almost three quarters of demand for Australia's thermal coal exports saying they intend to achieve net zero emissions in the next few decades. This effectively means they will phase coal completely out of their energy mix. While that might seem incredible to many, just stop and pause to think of the amazing things humans have managed to achieve over the space of three decades in the past.

Do we really want our country to bet against the collective intelligence and innovative abilities of the people of Europe, California, Japan, South Korea and China?