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We can no longer rely on coal for our future prosperity. We must plan for life without it

by Greg Jericho

It will be no news to anyone that the coal industry is a pretty big deal in our economy – it is our biggest export and a major source of economic growth. We do however get a bit overexcited about it as we get trapped into thinking the Australian economy is all about mining and any hits to it means we are effectively stuffed. Events this week showed that we need to start preparing for life without it.

With the exception of a few years when iron ore exports were boosted, coal has long been our major export. Japan is the biggest destination, but around 20% of it goes to China. Even so, the coal mining sector is not quite as important as you might think. It accounts for less growth in our economy than iron ore mining, or indeed something as mundane as the retail sector. So while we do need to be concerned about the mining sector, it’s when people stop buying things in our shops that we’ll know we’re in recession territory.

But this week everyone got a bit more concerned about coal because of two reasons. The first was that Australian’s biggest miner of coal, Glencore, announced that it would limit coal production. Notionally this was due to “investor concerns” about the environment, but as finance journalist Michael West noted, “Glencore is ruthless.”

The only ones still seeing a future in coal are those not in the mining industry, and mostly those on the government benches

Mining companies don’t start limiting mining just because they are overcome by the warm fuzzies of shareholders being concerned about climate change. They know it is fast becoming a stranded asset – an asset that, due to changes in technology (or in this case, responses to climate change), becomes a liability to hold.

Glencore is not the only mining company no longer seeing as much lustre in coal as in the past. BHP on Tuesday released its latest “economic and commodity outlook”, in which it said that “by the end of next decade on a conservative estimate” it expected coal to “lose competitiveness to renewables on a new-build basis in the developed world and in China”.

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In October last year Rio Tinto sold the last of its remaining coal assets. You don’t do that if you think it has a glowing future.

Pretty much the only ones still seeing a future in coal are those not in the mining industry, and mostly those on the government benches.

It must also be said that the ALP remains rather too pussy footed about the coal industry – wanting to talk about it having a future (that no one really believes, or believes will be anything like it has had in the past) and being far too limp on the Adani coal mine.

But coal for now remains important to the economy, which is why the second bit of news on Thursday that the major Chinese port of Dalian had indefinitely banned further imports of Australian coal spooked both markets and the government.

Given coal imports from Russia and Indonesia were not being affected by any ban, it was clearly a pointed and political step.

As a result of the news, the value of dollar fell 1% to $US0.71, although we should not panic too much about that – the dollar has been sitting around that level since October.

The Chinese government has suggested that it was “normal practice”, as customs officials had assessed “the safety and quality of imported coal” and analysed “possible risks, and conducts corresponding examination and inspection compliant with laws and regulations”.

So why Australia? Is it because of the government last year banning Chinese telecommunications companies Huawei and ZTE from supplying equipment to Australia’s 5G network? Or suggestions China was involved in the hacking of Australia’s major political parties? (And throw in for good measure Senator Barry Sullivan this week using “Chinaman” as a slur?)

For his part the governor of the Reserve Bank, Philip Lowe, was trying to placate fears by telling the House economics committee on Friday that while a ban was “undesirable” that “whether it’s a disaster we have to wait and see”. He added, “If it were to be the sign of a deterioration in the underlying political relationship between Australia and China then that would be more concerning.”

Now clearly there are many forces at work, such as China pushing its weight around. But China is also, as Lowe noted, “trying to contain production of steel for environmental reasons.” The Chinese coal industry is also not doing all that well, and so China could be just engaging in a bit of a trade battle to help it out.

But none of these are particularly great news for the Australian coal industry, and if China has decidedly taken a step against Australia, it does not bode well for our economy. But Josh Frydenberg is right when he argues that the trade between Australia and China is mutually beneficial, so one would expect any fight will be limited.

It does however highlight just how much bulldust was being spread around when the government was talking up the benefits of our free trade agreement with China. So much for it being, as then foreign minister Julie Bishop said, “a major step in cementing closer economic relations with China” and that it would “be the catalyst for even further mutual gain between our two countries”.

Regardless of why this is happening, it should serve as yet another wake up call to politicians of both major parties.

We cannot rely on coal for our future prosperity. We must be planning for life without it. It is going to be tough and it will leave some worse off, and will require a major adjustment of our economy.

However it needs to happen, and anyone hoping that we can avoid the issue merely because it is too hard will find it will only get harder and more painful when, inevitably, the decision that coal has no future is made for us.