Explainer: what is energy security, and how has it changed?


Samantha Hepburn, Deakin University

The idea of energy security has been at the centre of much policy debate recently. The federal government defines energy security as the adequate supply of energy across the electricity, gas and liquid fuel sectors.

But this notion has become outdated, following the spate of electricity blackouts that have occurred in the past few years. The concept of energy security is now increasingly synonymous with resilience: responding to problems quickly and avoiding power outages.




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To be secure, the national energy market must ensure a sufficient supply of electricity at an affordable price and be able to respond to major disruptions. Being “energy secure” in this context now means having a backup plan. Unfortunately, Australia doesn’t.

All about oil

Historically, energy security was purely about oil supply. It evolved as a policy response to the 1973 Arab oil embargo. At the time, the aim was to coordinate among the industrialised countries if supply was disrupted, to avoid future supply problems and to deter exporters from using resources as a strategic weapon. Four key developments emerged from the embargo:

  • the International Energy Agency (IEA), whose members are the industrialised countries;

  • strategic stockpiles of oil, including the US Strategic Petroleum Reserve;

  • continued monitoring and analysis of energy markets and policies; and

  • energy conservation and coordinated emergency sharing of supplies in the event of a disruption.

Australia is not ‘secure’

When Australia joined the IEA in 1979, it was a net exporter of oil and was therefore exempt from the requirement to stockpile liquid fuel. Since this time, however, Australia’s oil production has peaked and is now in decline.

Reasons for this are various but include the reduction in oil refining capacity and significant increases in reliance on imported oil products.

In 2012 Australia became non-complaint with the IEA requirement that all members maintain oil stocks equivalent to at least 90 days of the previous year’s daily net oil imports.

In contrast with many other IEA members, Australia does not have a public (or government-owned) stockpile of oil and has instead relied on commercially held stocks. Currently, Australia has an aggregated fuel reserve of roughly 48 days, including about 22 days’ supply of crude oil, 59 days of LPG, 20 days of petrol, 19 days of aviation fuel, and 21 days of diesel.




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This lack makes Australia very vulnerable in a crisis – 98% of our transportation relies on liquid fuel, as do all of our major defence platforms. An extended disruption means our economy, policy force and army could cease to function.

While the federal government intends to return to compliance by 2026, our ongoing failure to understand and respond to a changing environment has resulted in us becoming, at least in the context of liquid fuel, energy “insecure”.

Are we ready for a new approach?

The modern energy landscape is complex, and energy security is a much broader and more dynamic concept than it was thirty years ago. Public expectations have also evolved. Australia must address a multitude of new challenges that include: climate change, integrating renewable energy, rising peak demand, rising domestic gas prices and a raft of new geopolitical rivalries.

In many parts of the world, mechanical and analogue systems traditionally powered by oil-products, have been replaced with automated and networked systems that run on electricity. As a result, the number of digitally connected devices has grown from 400 million in 2001 to in excess of 25 billion in 2018.

These changes make electricity and natural gas, in addition to oil, key supports of many facets of society. They ensure that the modern world is completely dependent on energy generation. Within this context, resilience is a critically important requirement.

Future energy systems, responsive to this enlarged concept of energy security will therefore look very differently. Large fossil fuel and synchronous generators will be replaced by a clean electricity system composed of small-scale, clean asynchronous generators. It will mix large renewable projects (which will mean extending the physical transmission network) with distributed energy generation (for example, from rooftop solar), and the network will require new systems to ensure coordination and stability.

Renewable energy is an important component of energy security but it works differently to fossil fuels. For example, inertia functions differently. Inertia is the capacity of a power system to respond to unexpected shocks, and its ability to react and stabilise the system’s balance.

Inertia slows down the rate at which frequency changes after a disruption in the grid, such as the failure of a power plant or a transmission line. Inertia has traditionally been provided by fossil fuel generators. However, within a mixed energy framework, renewables will provide synthetic inertia. For example, modern wind turbines can use the kinetic energy stored in the generator and blades to be responsive during grid stress. This can provide an efficient injection of power into the grid where it is required, and the delivery can be flexibly controlled to suit regional grid conditions. New storage technologies will, however, need to be incorporated into networks early so their application in practice can be understood.

These are all responses to a new understanding of energy security. Today, what is essential to the definition of energy security is not just an adequate supply of energy at an appropriate price but an adequate supply of sustainable, resilient energy at an appropriate price, which is responsive to the demands of a decarbonising economy.




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In light of this, energy security is perhaps even more crucial in our modern world than it was back in 1973. Understanding the evolving meaning of energy security means we are better equipped to comprehend the different ways in which our global interconnection can make us vulnerable.

We need to minimise risk and reduce exposure. We need to imagine what a secure energy framework of the future looks like. We need energy policy that is more responsive to the social, economic and environmental demands of modern Australia.The Conversation

Samantha Hepburn, Director of the Centre for Energy and Natural Resources Law, Deakin Law School, Deakin University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Coal does not have an economic future in Australia


Frank Jotzo, Crawford School of Public Policy, Australian National University and Salim Mazouz, Australian National University

Renewables are stealing the march over coal in Australia, and the international outlook is for lower coal demand. Today the international Coal Transitions project released its findings, based on global coal scenarios and detailed case studies by teams in China, India, South Africa, Australia, Poland and Germany.

Our research on Australian coal transition – based on contributions by researchers at the Australian National University and the University of Melbourne – looks into the prospects for coal use in Australia and for exports, and the experiences with local transition in the case of the Hazelwood power station closure.




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Coal exports

Coal production in Australia is likely to be on a long term declining trajectory. Almost all coking coal (coal used for making steel) mined in Australia is exported, as is around 70% of steam coal (for electricity generation). Australia supplies about a fifth of the global steam coal trade.

A question mark hangs over the future of steam coal exports. Economic, technological and policy developments in other countries all point to likely falling coal use over time. The international coal transitions synthesis report expects that global coal consumption will go into reverse by the early 2020s.

In most industrialising countries, there are big concerns about local air pollution, and renewable power alternatives are becoming cost-competitive with coal. Add to that the pressure to meet Paris emissions targets.

China and India, on which much of the hopes of Australia’s coal export industry are pinned, mine coal themselves. When overall coal use in these countries falls, imports may be curbed, if only because of pressures to prop up domestic coal mining.

Coal in Australia’s power sector

Most coal used in Australia is for power generation. We are at the start of a fundamental change in the system, where coal power will be replaced by renewables, with energy storage and flexible demand-side response to firm up the system.




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This change now reflects market economics. New wind farms and solar parks can now provide energy at much lower cost than any new fossil fuel powered generators. A new coal fired power plant would need subsidies, take a long time to build, and suffer exposure to future carbon policy.

The competition is now between renewables and existing coal fired power stations. Wind and solar power cost next to nothing to run once built, so they are dispatched first on the grid and tend to bring wholesale market prices down. In turn, the economics of coal power plants deteriorates. They will not be able to sell as much power, and get lower prices on average for every megawatt-hour of electricity produced. New wind and solar is now contracted at prices close to the operating cost of some existing coal plants, and renewables costs are falling further.

Coal plants will be less and less profitable. They will tend to be shut down earlier, typically when major repairs or overhauls are due. Major refurbishments will tend to become unattractive. And the system does not need coal plants to run reliably. A combination of regionally dispersed renewables, pumped hydro and battery storage, gas plants and demand response will do the job.

It is difficult to predict just when coal plants will shut down. The following graphic illustrates the difference between a flat 50-year retirement pattern (as used for example by the Australian Energy Market Operator), with plants retiring at 40 years of age, in line with the average retirement age of plants over the past decade, and two illustrative scenarios that capture the fact that coal plants will come under increasing economic pressure.

In our “moderate” scenario, remaining coal plants retire at 55 years in 2017 and progressively retire younger until they exit at age 30 by 2050. In our “faster” scenario, plants exit at 50 years now, then progressively younger until they exit at age 30 by 2030.

Coal closure scenarios from Coal Transitions Australia report.

Even more rapid closure scenarios are plausible if the cost of renewables and storage continue on their recent trends. We do not present them here, instead opting for relatively conservative assumptions.

The pace of closure makes a big difference to emissions. In the “moderate” scenario, cumulative emissions from coal use are around 2.6 gigatonnes of carbon dioxide (GtCO₂) during 2020-50, and in the “faster” scenario around 1.8 GtCO₂.

As a reference point, a “2 degree compatible” emissions budget for Australia proposed by Australia’s Climate Change Authority has a total national emissions budget of around 5.8 GtCO₂ from 2020-50. Our “moderate” scenario has coal emissions take up around 44% of that cumulative emissions budget, while the “faster” scenario takes up around 32%. By comparison, coal currently makes up around 30% of Australia’s annual net emissions.

It is no longer true that reducing emissions in the electricity sector necessarily means higher prices. These days, and in the future, having policy to guide the replacement of ageing coal capacity with cheap renewables is a win-win for consumers and the environment.

We had better get ready

We better put our efforts in preparing for the transition, rather than trying to stem the tide. That includes a meaningful policy treatment of carbon emissions, and mechanisms to allow more predictable exit pathways. The relatively sudden closures of the Hazelwood power station is an example of how not to manage the transition.

Wholesale prices jumped up because the replacement investment takes time, and governments scrambled to provide support to the local community after the fact.

We can do much better. Australia is well placed for a future built on renewable energy. The change can be painful if it’s not well managed, but the future looks bright.




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The Conversation


Frank Jotzo, Director, Centre for Climate Economics and Policy, Crawford School of Public Policy, Australian National University and Salim Mazouz, Research Manager, Crawford School of Public Policy; and Principal at NCEconomics, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The pro-coal ‘Monash Forum’ may do little but blacken the name of a revered Australian


Marc Hudson, University of Manchester

The coal industry has a new voice in parliament, in the form of the so-called Monash Forum – an informal government faction featuring former prime minister Tony Abbott and backbench energy committee chair Craig Kelly.

The group, which also reportedly contains former deputy prime minister Barnaby Joyce alongside as many as 11 of his Nationals colleagues, is agitating for the government to go beyond its current energy policy and build a taxpayer-funded coal power station.

As several commentators have pointed out, the move is a calculated push by the usual backbench suspects to put pressure on Prime Minister Malcolm Turnbull, two weeks ahead of crucial talks with state and territory leaders over the design of the National Energy Guarantee (NEG).




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Perversely, the Monash Forum’s members want the NEG to prove its “technology neutral” credentials by including coal as well as renewables. And let’s not forget that the NEG policy was cooked up when it became clear that Chief Scientist Alan Finkel’s Clean Energy Target was unpalatable to Coalition MPs (but not economists).

What’s in a name?

In choosing to form a group like this, opponents of action on climate change are trying to give themselves gravitas, in three possible ways.

First and foremost, they are aiming for the “halo effect” of taking a known public figure and claiming some of his (and it’s usually a he) intellectual cachet. First and foremost here are groups named after scientific figures.

In 2000, a group of climate deniers, including the late Ray Evans and former Labor finance minister Peter Walsh, set up the grandly named Lavoisier Group to undermine progress towards Australian ratification of the Kyoto Protocol and a domestic emissions trading scheme. Economist John Quiggin probably said it best when he wrote that the group was “devoted to the proposition that basic principles of physics discovered by, among others, the famous French scientist Antoine Lavoisier, cease to apply when they come into conflict with the interests of the Australian coal industry”.

Then in 2011, opponents of Julia Gillard’s carbon pricing scheme created the Galileo Movement – casting themselves, like their Renaissance namesake, as heroic dissidents to an unthinking orthodoxy.

The second aim is to create a name that implies a stolid, no-nonsense approach to policy. One example is the now defunct Tasman Institute, which was an influential voice against climate action and in favour of electricity privatisation in the 1990s.

The third tactic takes this approach a step further, by creating a name that sounds impartial or even pro-environmental, thus obfuscating the group’s true intent, which is to stymie climate policy. Previous examples include the Australian Industry Greenhouse Network, the Global Climate Coalition, the Australian Climate Science Coalition, and the Australian Environment Foundation, launched in 2005 to the chagrin of the existing Australian Conservation Foundation.

The Monash Forum – with its implied connotations of nation-building and high-minded political debate – is perhaps trying to achieve all three of these goals, this time from within parliament itself rather than the surrounding policy development bubble.

Monash on the march

For the younger readers among us, John Monash was arguably Australia’s most revered soldier, described by British war historian AJP Taylor as “the only general of creative originality produced by the First World War”.

The Monash Forum’s founders also hark back to his role in helping kick-start the exploitation of Victoria’s enormous brown coal reserves in the 1920s.

But the Returned and Services League is not impressed that this former serviceman has been pressed into political service, declaring that “Monash’s name is sacrosanct and should be above this form of political posturing”.

What’s more, the name is bound to create confusion over whether it is affiliated in some way with Monash University (it isn’t), and there will doubtless be some unhappy faces at the Economic Society of Australia’s ESA Monash Forum (which is).

Will coal really make a comeback?

In seeking to deliver new coal-fired power stations, the new Monash Forum is attempting to mine a seam that has already been extensively excavated.

The Minerals Council of Australia, which [merged with the Australian Coal Association in 2013], has been trying for years to kickstart public support for coal. Who could forget the “Australians for Coal” and “Little Black Rock” campaigns, or last year’s “Coal: Making the future possible”?

But the council’s latest energy and climate policy statement refers to coal only once, prompting headlines that it has gone cold on coal. BHP has considered quitting the council over its pugnacious stance, while Rio Tinto is selling off Australian coal assets. The mining lobby may soon have to recalibrate its priorities – lithium, anyone?

The problem for coal’s proponents is that most Australians are keen to see the back of it. The promised global wave of “High Efficiency, Low Emission” coal plants has failed to materialise. And stunts such as Treasurer Scott Morrison waving a lump of coal in parliament are derided by a public who are far more energised by the prospect of renewables.




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When he was prime minister, Abbott tried to sabotage investment in large-scale renewables so as to keep the way clear for fossil fuels. But tellingly, he left subsidies for rooftop solar panels largely untouched, presumably realising that voters saw renewable energy as sensible and viable, on a small scale at least.

The problem for advocates of renewables, and climate action more broadly, is that winning slowly on climate change is the same as losing, as Bill McKibben noted last year.

The ConversationPerhaps that is the ultimate aim of the Monash Forum and those who share its goals. Renewable energy may win in the end, but it will win slowly enough that coal can earn one last payday.

Marc Hudson, PhD Candidate, Sustainable Consumption Institute, University of Manchester

This article was originally published on The Conversation. Read the original article.

Shorten goes colder on Adani coal mine as the battle for Batman begins


File 20180202 162082 10wrrlr.jpg?ixlib=rb 1.1
Bill Shorten said he had become increasingly sceptical of Adani in recent months.
AAP/David Crosling

Michelle Grattan, University of Canberra

Opposition Leader Bill Shorten has taken a further step toward opposing the proposed Queensland Adani coal mine as he starts campaigning for the Batman byelection, where Labor is fighting off a strong challenge from the Greens.

Shorten was appearing with Labor’s candidate Ged Kearney, who on Friday resigned as ACTU president to contest the byelection.

Shorten seized on a Guardian Australia report that said Adani put in “an altered laboratory report” when appealing a fine for contamination of wetlands near the Great Barrier Reef.

Shorten said he had become increasingly sceptical of Adani in recent months.

If Adani was “relying on false information, that mine does not deserve to go ahead”.

He called on the government to investigate the claim, and said that if it didn’t, Labor in government would do so.

Kearney said she did not see the mine going ahead. “I know Adani are not good employers,” she said.

Adani will be a big issue in the byelection, with the Greens running hard on it and a grassroots campaign underway. Directly behind Shorten at his news conference demonstrators held up “Stop Adani” signs. A big protest is planned in Canberra when parliament resumes next week.

Earlier this week, Shorten hardened his position on the mine, telling the National Press Club: “We’re certainly looking at the Adani matter very closely. If it doesn’t stack up commercially or if it doesn’t stack up environmentally it will absolutely not receive our support.”

Last year, Shorten was looking on the positive side of the project. In May he said: “There’s no point having a giant coal mine if you wreck the reef but, on the other hand, if the deal does stack up, if the science safeguards are there, if the experts are satisfied, then all well and good and there’ll be jobs created.”

But he did not support the government giving a loan subsidy for the railway that would support the mine.

Greens leader Richard Di Natale tweeted on Friday:

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Meanwhile, the Greens moved to up the ante for Labor on the issue of power, releasing a policy calling for the return of the national electricity grid into public ownership, beginning with the acquisition of the interconnectors between regions.

It said the cost of acquiring the five privately owned interconnectors would be A$2.8 billion. “A return to complete public ownership can ensure investment decisions are made in the public interest, not in the interests of profit,” the policy says.

The ConversationKearney said renationalisation was worthy of consideration but Shorten was dismissive, saying it was not going to happen.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Biomining the elements of the future



File 20180124 72597 1twk9y1.png?ixlib=rb 1.1

Joey Kyber/Pixels, CC BY-SA

Marcos Voutsinos, University of Melbourne

Biomining is the kind of technique promised by science fiction: a vast tank filled with microorganisms that leach metal from ore, old mobile phones and hard drives.

It sounds futuristic, but it’s currently used to produce about 5% of the world’s gold and 20% of the world’s copper. It’s also used to a lesser extent to extract nickel, zinc, cobalt and rare earth elements. But perhaps it’s most exciting potential is extracting rare earth elements, which are crucial in everything from mobile phones to renewable energy technology.




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The Mary Kathleen mine, an exhausted uranium mine in northwest Queensland, contains an estimated A$4 billion in rare earth elements. Biomining offers a cost-effective and environmentally friendly option for getting it out.

Biomining is so versatile that it can be used on other planetary bodies. Bioleaching studies on the international space station have shown microorganisms from extreme environments on Earth can leach a large variety of important minerals and metals from rocks when exposed to the cold, heat, radiation and vacuum of space.

Some scientists even believe we cannot colonise other planets without the help of biomining technologies.

How does it work?

Microorgaisms in tanks leach the minerals from any source material.
Courtesy of Pacific Northwest National Laboratory.

Biomining takes place within large, closed, stirred-tank reactors (bioreactors). These devices generally contain water, microorganisms (bacteria, archaea, or fungi), ore material, and a source of energy for the microbes.

The source of energy required depends on the specific microbe necessary for the job. For example, gold and copper are biologically “leached” from sulfidic ores using microorganisms that can derive energy from inorganic sources, via the oxidation of sulfur and iron.

However, rare earth elements are bioleached from non-sulfidic ores using microorganisms that require an organic carbon source, because these ores do not contain a usable energy source. In this case, sugars are added to allow the microbes to grow.

All living organisms need metals to carry out basic enzyme reactions. Humans get their metals from the trace concentrations in their food. Microbes, however, obtain metals by dissolving them from the minerals in their environment. They do this by producing organic acids and metal-binding compounds. Scientists exploit these traits by mixing microbes in solution with ores and collecting the metal as it floats to the top.

The temperature, sugars, the rate at which the tank is stirred, acidity, carbon dioxide and oxygen levels all need to be monitored and fine-tuned to provide optimal working conditions

The benefits of biomining

Traditional mining methods require harsh chemicals, lots of energy and produce many pollutants. In contrast, biomining uses little energy and produces few microbial by-products such as organic acids and gases.

Because it’s cheap and simple, biomining can effectively exploit low grade sources of metals (such as mine tailings) that would otherwise be uneconomical using traditional methods.

Countries are increasingly turning to biomining such as Finland, Chile and Uganda. Chile has exhausted much of its copper rich ores and now utilises biomining, while Uganda has been extracting cobalt from copper mine tailings for over a decade.




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Why do we need rare earth elements?

The rare earth elements include the group of 15 lanthanides near the bottom of the periodic table, plus scandium and yttrium. They are widely used in just about all electronics and are increasingly sought after by the electric vehicle and renewable energy industries.

The unique atomic properties of these elements make them useful as magnets and phosphors. They’re used as strong lightweight magnets in electric vehicles, wind turbines, hard disc drives, medical equipment and as phosphors in energy efficiency lighting and in the LEDs of mobile phones, televisions and laptops.

Despite their name, rare earth elements are not rare and some are in fact more abundant than copper, nickel and lead in the Earth’s crust. However, unlike these primary metals which form ores (a naturally occurring mineral or rock from which a useful substance can be easily extracted), rare earth elements are widely dispersed. Thus to be economically feasible they are generally mined as secondary products alongside primary metals such as iron and copper.

Over 90% of the world’s rare earth elements come from China where production monopolies, trade restrictions and illegal mining have caused prices to fluctuate dramatically over the years.

Most renewable energy technologies depend on rare earth metals.
Pixabay

Reports from the US Department of Energy, European Union, and the US intelligence commission have labelled several rare earth elements as critical materials, based on their importance to clean energy, high supply risk, and lack of substitutes.

These reports encourage research and development into alternative mining methods such as biomining as a potential mitigation strategy.

Heeding these calls, laboratories in Curtin, and Berkeley Universities have used microorganisms to dissolve common rare-earth-element-bearing minerals. These pilot scale studies have shown promising results, with extraction rates growing closer to those of conventional mining methods.




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Because most electronics have a notoriously short lifespan and poor recyclability, laboratories are experimenting with “urban” biomining. For example, bioleaching studies have seen success in extracting rare earth elements from the phosphor powder lining fluorescent globes, and the use of microorganisms to recycle rare earth elements from electronic wastes such as hard drive magnets.

The ConversationThe rare earth elements are critical for the future of our technology. Biomining offers a way to obtain these valuable resources in a way that is both environmentally sustainable and economically feasible.

Marcos Voutsinos, PhD Candidate, Geomicrobiology, University of Melbourne

This article was originally published on The Conversation. Read the original article.

The Queensland election outcome is a death knell for Adani’s coal mine


John Hewson, Crawford School of Public Policy, Australian National University

The coal mine proposed for Queensland’s Galilee Basin by Indian mining giant Adani has been a moveable feast, with many stories about its scale, purpose, financing, job prospects, and commerciality. The prospect of a return of the Palaszczuk government in Queensland is effectively the death knell for the project.

Labor has so pledged to block a concessional, taxpayer-funded loan, while embracing a significantly expanded program to develop regional solar thermal power in the state.

It seems the proposal has been reduced in scale, with the original A$21 billion plan reined back to just its initial stage, costing about A$5 billion. Its purpose has changed from exporting coal to India’s Adani Power, to now possibly shipping coal to Bangladesh and Pakistan. Its job prospects are confusing with early estimates well in excess of 10,000, down more recently to fewer than 1,500, after Adani admitted that the mine’s operations will be heavily automated.

The project’s financing has been under a continuous cloud given the scale of the debts of the Adani Group, and the reluctance of global banks in a world transitioning to low-emission technologies. All of this is complicated by the potential for concessional finance from the Northern Australia Infrastructure Fund (NAIF) and Chinese money. As a high-cost, low-grade coal project, its commerciality has bounced around, given variations in “offtake prices” and expectations on coal futures prices.


Read more: Why big projects like the Adani coal mine won’t transform regional Queensland


The latest version is that the project has been scaled down from some 60 metric tonnes per year (mtpa) to about 25mtpa, requiring an extra investment of some A$2 billion for the mine development, and A$3.3 billion for the rail link to the export terminal at Abbot Point, but avoiding the need to expand Abbot Point. Adani Enterprises is already financially strapped, with net debt exceeding market capitalisation, and the Adani family needing to refinance Abbot Point. The Adani family has already spent some A$3.5 billion on acquiring the deposit and developing their Australian project to date.

So with virtually no capacity to inject additional equity, the focus is on whether even this scaled-down proposal can be financed by additional debt? This is why a government-sponsored concessional loan of up to A$1 billion from the NAIF to build the rail link has been seen as crucial to the project moving forward. It could be accepted by potential financiers as low-cost, high-risk “quasi equity”. It would also effectively hand Adani a monopoly position in standard gauge rail, in turn creating monopoly conditions at Abbot Point.

A more recent constraint on sentiment towards to the project has come from the Indian government’s rapidly changing attitudes to future power generation, accelerating the transition from coal-fired power to renewables. Recent statements by RK Singh, India’s Minister of Power and New and Renewable Energy have confirmed that India can exceed its target of 275 gigawatts of renewable energy by 2027, a massive shift from its historic reliance on coal.

This accelerates the likely end to coal imports by India, which has seen the Adani project seek alternative markets in Bangladesh and Pakistan.

Indeed, there is now documentary evidence of an electricity offtake agreement with the Bangladeshi government’s power board, setting a contractual “cost plus plus” supply of low-quality imported coal delivered at prices that are likely to approach 50% above the current coal spot price. But even at the current futures price of about US$80 per tonne, the Carmichael mine could be cashflow-positive.

Funding the Carmichael mine

Can the Adani group hope to raise the necessary additional debt? This is a two-pronged challenge – the family needs to refinance Abbot Point requiring some A$1.5 billion over the next 12 months, and the A$5 billion-plus project itself.

It looks like the family had to enlist the services of second-tier investment bank Jeffries to initiate a bond refinancing for Abbot Point – to be rated just above junk bond status. However, Jefferies reportedly pulled out within a week, its reasoning unstated.

With some 20 to 30 global banks, including Australia’s big four, having ruled out financing the mine, and Indian banks strapped for capacity, the focus has shifted to Chinese group CMEC as a potential financier, against likely Bangladesh or Pakistani alternatives. However, even with such offtake agreements the project’s longer–term viability is questionable.


Read more: The future of Australian coal: an unbankable deposit


Obviously the Chinese Communist Party, and other Chinese authorities, will need to think carefully about the potential consequences of getting involved now that the project lacks direct financial support from state and federal governments in Australia. This is especially so when the issue of Chinese influence and involvement in Australia generally, and in our politics specifically, is becoming controversial.

I also suspect that the federal Labor opposition may now adopt a position against the Adani project, in light of Queensland’s state election result.

The bottom line for financing is an assessment of the longer-term risks with Adani Enterprises, the family, and the project. Both the company and the family are already heavily exposed financially, and the project is a high-cost, high-risk one.

Bearing in mind the Paris climate agreement, the rapidly falling costs of reliable renewables, and India’s shifting energy strategy, the development of any new coal mine is certainly a very big call.

I suspect that the Adani project is already a stranded asset, and definitely not worthy of either Australian taxpayer support or Chinese investment.

Interactive: what the Adani coal mine means for Queensland

The Conversationhttps://cdn.theconversation.com/infographics/134/1cbeb15f9237d4fbc13472fb72fa7981bc16961f/site/index.html

John Hewson, Professor and Chair, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University

This article was originally published on The Conversation. Read the original article.

Why big projects like the Adani coal mine won’t transform regional Queensland


John Cole, University of Southern Queensland

Queensland election campaigns often focus on big projects for the regions, such as for roads, power plants and mines. But research suggests that mega projects, such as in gas and coal, have not transformed skills or improved employment prospects in regional Queensland.

Take away the temporary booms from construction and other short-term jobs, and employment growth overall is no better than before the global financial crisis. Certainly Queensland’s regions are no more resilient. Instead of these mega projects, what’s needed are new sources of economic value in knowledge, services, and technology.


Read more: Here’s 49 small communities innovating as well as the big cities


Between 2010 and 2013 investment in coal mining surged 400% in the Bowen Basin. Further south, in the Surat Basin and at Gladstone, four international consortia spent more than A$70 billion fast-tracking a coal seam and liquid natural gas industry.

These projects fell far short of generating new skills and enduring businesses in the regions. Continuing dependence on resources and agriculture also creates its own vulnerabilities, as both are challenged by market and investment volatility, and increased climate risk.

Overall the focus on mega projects has weakened social and economic resilience in communities across Queensland. Resilience refers to the capacity of regional communities to handle risks and manage change. Resilient regions deepen and diversify their economies.

Megaproject sugar highs

Annual construction spending in the resources sector peaked at A$36.6 billion in Queensland in 2013-14, and has dropped by 70% since. Unemployment has doubled in Queensland’s northern, central and outback regions.

The impact is seen in Townsville, Rockhampton, and Gladstone, who are now pitching to become bases for “Fly In Fly Out” workers. Rather than drive their own local economic development, these cities are punting on the next big mining project.

Gladstone is already the pin-up of the construction boom-bust development model. The port city boasts a highly trained workforce in alumina and aluminium processing, cement, liquid natural gas and chemical manufacturing. Still, it waits on the next big mining construction boom.


Read more: If Queenslanders vote on economic issues the Labor government is looking good


What regional Queensland really needs is politicians to abandon short-term economic fixes, in favour of a sustainable long term vision. Policies would have greater impact if they focused on skills and enterprise training. Stronger regional collaboration to broker opportunities for smart businesses is essential.

Just north of Brisbane, Moreton Regional Council is showing the way by transforming a former industrial site into a university campus. Tertiary education will come to the fast growing region along with a research and technology park, creating the jobs of the future.

Regional Queensland can also learn from the European Commission’s “smart specialisation” structural assistance programs that help regions build knowledge-based competitive industries through strategic public funding and support for research and development etc.

By 2020, smart specialisation in Europe is expected to deliver 15,000 new products to market, 140,000 new startups and 350,000 new jobs.

Integral to the European strategy is strong collaboration between the research and university sectors, and regional industries. Strong cooperation between levels of government is key to the success. The industries are as varied as cheese manufacturing in Spain, new transport systems in Finland, and materials manufacturing in France.

The Europeans have found that changing business culture and boosting entrepreneurship are just as important to creating opportunity as large infrastructure projects.

What Queensland should do

Queensland should rethink its big projects for a big country approach. Regional jobs that depend on project investment without generating local income are not sustainable. Small business and community must be restored to centre stage in development strategy.

Small and medium businesses collectively account for more than 99% of all business in Queensland, and three times as many people work in the state’s A$20 billion manufacturing sector (169,000) as work directly in the resources sector (48,000).

But small and medium businesses lack the profile of the “big end of town”, and the large resources companies have been effective at selling the narrative that they are central to the A$300 billion Queensland economy.


Read more: Bust the regional city myths and look beyond the ‘big 5’ for a $378b return


The priority for developing Queensland’s regions should be investment that generates small business growth, local income, new skills and communities. Particular emphasis has to be given to attracting and retaining talented people.

The state government can best help regional Queensland by heeding the Productivity Commission’s call to help regional Australia adapt and exploit the opportunities of ever present change. This requires greater local initiative, making the most of competitive strengths, and training people to better engage with the world.

The global services sector is a $US47 trillion industry. For regional Queensland to tap into this sector will require skills in fields as diverse as big data, biotechnology, genetics, robotics, communications, and digital manufacturing.

A good start has been made in the Advance Queensland Regional Innovation Programs which have challenged regions to think outside the box, collaborate, and come up with their own strategies. It complements the federal government’s Building Better Regions Fund.

The ConversationThis approach challenges the current politically dominated top down model of regional development. It’s a vision for regional Queensland that extends beyond resources, agriculture, tourism and construction to the people themselves.

John Cole, Executive Director, Institute for Resilient Regions, University of Southern Queensland

This article was originally published on The Conversation. Read the original article.

Vital Signs: Australia’s mining boom transition is on shaky ground


Richard Holden, UNSW

Vital Signs is a weekly economic wrap from UNSW economics professor and Harvard PhD Richard Holden (@profholden). Vital Signs aims to contextualise weekly economic events and cut through the noise of the data affecting global economies.

This week: Australia continues to grow jobs, but wages aren’t keeping up and policymakers are running out of options.


Let’s begin with an economy that is doing relatively well.

In the US, the data were both predictable and moderately positive.

Consumer prices (as measured by the CPI) were up only 0.1% in October, but this was in line with expectations. Recall that two major hurricanes drove up gasoline prices in September, and those increases rolled off (they were up 13.1% in September and fell 2.4% in October). The year-on-year CPI increase was 2.0% – again, in line with expectations.


Read more: Trump’s ‘America first’ trade policy ignores key lesson from Great Depression


The Producer Price Index (PPI) rose by a healthy 2.6% on a year-on-year basis – despite a drop in gasoline prices for producers of 4.6% (note the difference between wholesale and retail price changes). Perhaps most importantly, there were relatively strong increases in elements of the index that the US Federal Reserve cares most about (as they are less cyclical than, say, energy prices), like healthcare costs.

Less expected, but happy news, was the 0.2% rise in retail sales. That puts retail sales up 4.6% on an annual basis. This is further evidence of the solid rebound in the US economy.

And now to Australia.

On the plus side, a fair number of jobs are being created. As Treasurer Scott Morrison was eager to point out on Thursday, 296,400 jobs have been created this year; 236,000 of them full-time.

But the continued depressing news is about wages. The wage-price index was up 0.5% for the third quarter, below market expectations of 0.7%. That puts annual wages growth at 2.0%. With inflation running at 1.8%, that means real wages growth is effectively zero. And it has been like that for a long time.

This is causing enormous problems for Australian households and policymakers.

Recall that Australian households are among the most highly leveraged in the world – with debts at around 190% of GDP. So what is going to reduce that debt?

There are two possibilities: more inflation or more income. Inflation helps reduce the debt in real terms, and income helps for obvious reasons. Right now, both avenues look shaky.

On the former, the Melbourne Institute reported on Thursday that inflation expectations fell this month, providing further evidence that future inflation is likely to be low.

On the latter, there has been a continued run of low wages growth. This is an experience being felt in advanced economies around the world. That suggests it is something to do with technology, or global economic conditions, and therefore not all that amenable to policy.


Read more: Is faster profit growth essential for a pick-up in wages growth?


That leaves us with heavily indebted households, with no obvious way out. This, of course, puts a strain on consumer spending, which in turn affects business investment and employment, and the whole (vicious) cycle loops back on itself.

What is the cut-through for policymakers?

The RBA could drop interest rates from their current 1.50% level – and increasingly some economists are suggesting that. The worry is that a rate cut might further fuel housing prices, making the problem worse, not better.

Federal income tax cuts would be another avenue, but with the budget in structural deficit, and with an economically illiterate crossbench, that looks unlikely.

The government could embark on a major infrastructure spending plan, which could rejuvenate regional employment in areas hit by the forces of globalisation. With interest rates at very low levels, for very long maturities, this seems like a good idea, as long as the projects are assessed on a rational basis.

The concern in this regard is politics. Both major parties have their predilections and bases to pander to. A bad outcome would be, for example, a big coal mine investment by the Coalition, and some uneconomic green-energy boondoggle by the opposition.

The ConversationAs I have said before in this column, the US seems to be navigating the post-2008 economic world relatively well, although caution is certainly warranted. Australia is doing much less well. And the narrative that we have “successfully transitioned from the mining boom” seems a lot more like wishful thinking than hard evidence.

Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW

This article was originally published on The Conversation. Read the original article.