The search for clean coal

The coal industry is at a crisis point worldwide, and any fallout from its decline will impact heavily on the Australian economy.

Barack Obama has stated that his goal is to gradually shut-down every coal fired power station in the USA, and Green lobby groups worldwide are calling for the picketing of all new coal mines anywhere on the planet. Warren Buffett has said that decline of coal mining is gradual, but permanent.

Gas, more so than nuclear, is being promoted as the ideal alternate to totally replace coal and, to add to the problem, coal prices are steadily dropping to the point where it soon will become uneconomic to dig it up. Then, there is the issue of the relationship between miners and farmers, which is at a low ebb and becoming even more militant on both sides.

All of this uncertainty has led to a tightening of the equity and debt markets for coal mines, with junior miners not having strong enough balance sheets to back their development capital requirements. This leads us to a dismal looking future for coal - so the industry is now slowly and reluctantly seeking ways to turn its fortunes around.

There are two main options in turning the tide: carbon capture technology and reducing costs of production so as to make coal more affordable on world energy markets.

Both are languishing in a lack of will. Too many miners and politicians believe, misguidedly, that as the population of the world is increasing rapidly and there is currently a seriously inadequate supply of energy to at least half of the existing population of developing nations, this will mean that coal will always be needed, as other forms of energy will never cope with the demand.

Such a complacent attitude is the equivalent of “Nero fiddling while Rome burned”.

So, let us take a positive look at both challenges, as it is possible to turn them into assets.

Coal can retain its dominance as the world’s prime source of energy if it solves the issues relating to its perceived pollution of the atmosphere. This can be achieved by making coal clean by safely storing carbon.

Coal producers have invested moderately in this initiative in Australia in recent years through the Coal21 Fund, and governments have provided token support, but it is a long way from sufficient and shows a failure to take the matter seriously.

China, a massive user of coal power, has made the largest carbon capture investment by far and, interestingly, has employed many American scientists in their team - people frustrated by their own nation’s disinterest in the matter.

Australia has become a partner of China in this initiative by joining the Asia-Pacific Partnership on Clean Development and Climate. India, Indonesia, South Korea and Japan have joined also, thus creating a framework through which progress can be made. It is conservatively estimated that at least 30 billion dollars must be spent by the Partnership over the next decade before there will be a majority of power stations working with efficient, low-cost carbon capture and storage.

The unanswered question is whether the coal industry and governments are willing to invest capital of this significance. Actually, they have no alternative but to do so.

Australia has made a number of attempts at establishing small clean coal power stations - 15 in all so far, at places like Callide, Tarong, Munmorah, Hazelwood, Loy Yang, Mulgrave, Otway, Collie, etc.

Some have failed, others are slowly progressing, and a couple are looking very promising, particularly where oxyfuel capture technology is being used. Those to have failed have suffered from very high costs of production and an inability to find places nearby to safely store CO2. Similar projects overseas have also experienced failure for the same reasons - causing some scientists to say that it will be at least 2030 before long-term solutions are found, but this forecast is unnecessarily gloomy.

There is no doubt that CCS technology works, but the cost of building power stations with capacity to handle this technology will consume a lot of capital. This will be offset by the knowledge that, in the long term, operating costs will be lower and pollution will disappear, making the investment worthwhile.

Storage of CO2 in liquid form is another major issue. Underground sites are best, and there are many possibilities out in the Australian desert, except that it is a long way from the people who consume the power. Additionally, authentic answers must be found to allay fears that it may contaminate water reserves or slowly escape into the atmosphere. Nonetheless, the task is by no means impossible.

The inescapable issue is that the future of coal is dependent on finding economic and socially acceptable solutions for all of the above. It will become unjustifiable for the coal industry to say that it can’t be done because it will cost far too much. This price must be paid or the industry will die.

Governments cannot wash their hands of the matter like Pontius Pilate. They have no option but to partner the industry, as they will lose billions of dollars in royalties unless they become major investors in the action. They also have an unavoidable responsibility to be prime carers of the environment.

This being so, let us look at the cost of producing coal as it is the other major problem, particularly in Australia, where wages paid by mining companies are an outrage - out in the field and in head office. BHP, Rio Tinto and other major miners set an extraordinarily bad example in the boom years of mining by paying all executives and workers extravagant wages and bonuses in the naive belief that the boom would never end. In acting so irresponsibly, they caused enormous wage pressures in other industries to the detriment of the national economy as a whole.

All mining companies must now take urgent action to remedy this. They must cut executive pay first, then negotiate with unions to bring workers’ pay levels down to the same scale as the rest of Australia. I can already hear the yells of outrage, but the solution may be to progressively close every mine in Australia for a year and then open them again with new wage contracts that have a trace of commonsense in them.

Unless the pain of this drastic action is absorbed as a matter of priority, they will all be out of jobs within a decade.

The plus is that a reduction in the cost of coal on world markets, together with it becoming an environmentally clean product, will usher in an era of responsible prosperity for an important industry.

To emphasise my point, let me give a small example of the stupidity of the current wage structure in mining: A truck driver at a mine gets twice as much pay as an environment manager. This indicates what priority the environment has in the scale of thinking within the mining industry. It actually reveals the core of their problems.

But, lest we get too gloomy, I am pleased to read that Australia’s Energy Minister, Gary Gray, has visited and praised the CCS Plant at Otway in Victoria, where CO2 is being successfully stored, and has announced a grant of 50 million dollars to help develop a network of similar facilities.

I note also that American mining giant, Peabody, has now joined the government of China in a similar initiative. Equally encouraging is work of James Cook University in Townsville which is experimenting in using algae to absorb CO2 and converting the residue into marketable fertiliser.

So, we come to the crunch point. Green politicians and environment lobbyists worldwide are becoming increasingly militant, and have long-range plans to crank-up their militancy to a sustainable fever pitch that will last for decades. Their supporters are swamping the social media with virulent anti-coal messages, and the general public is becoming more and more uneasy about the damage that coal could be doing to the environment.

The problem will not go away, and the longer it is not resolved, the more attractive a reformed nuclear power industry begins to look.

We create clean coal or the industry dies.