Trapped in a climate fantasy: We actually need coal and gas

The Prime Minister appears to be the only one with a grip on reality inside Labor’s inner sanctum.

A party of government makes key compromises, and balances the competing interests, within its program. It doesn’t make fundamental policy in negotiation with extremist groups like the Greens. Picture:NCA NewsWire / Andrew Taylor

Here are four fundamental, unacknowledged realities underlying our energy, climate change and economic situation.

One. Coal is not a stranded asset. It is booming worldwide. The amount of traded coal is increasing. The share of global electricity coal generates has barely moved in 30 years, despite intense Western efforts to end financing for coal.

Two. This is true of fossil fuels generally. The percentage of global electricity generated by gas is rising.

Three. Australia’s economy is totally dependent on exports of gas, coal, iron ore and other minerals. Nothing can replace this. Without it, our social spending, defence, aid would all be unaffordable.

Four. The push for renewable energy to reduce greenhouse gas emissions is overwhelming in developed countries and strong in developing countries. However, if the world, or Australia, is to get anywhere near net zero, this will come at enormous financial cost and reduced living standards. This may be a sacrifice worth making to save the planet, but enormous costs are inevitable.

It is perhaps surprising that the political leader making the strongest effort to integrate these disparate realities into some kind of coherent policy is actually the Prime Minister Anthony Albanese. It’s important if Australian policy is to have any coherence that Albanese holds sway within his own party. It’s a perplexing feature of the new government that Albanese seems to be alone in making the case that new coal and gas projects should be approved because Australian coal is cleaner – that is, generates fewer emissions per unit of energy – than any coal that might replace it. And gas is cleaner than coal. That Albanese seems alone in advocating this proposition, which is Labor policy, is dangerous for the ALP.

It may be that his long involvement with the infrastructure portfolio has endowed Albanese with a deeper familiarity and appreciation than most left-wing politicians have of wealth creation rather than just redistribution.

A great deal of our climate ­debate is based on falsehoods, ­ignores fundamental facts and avoids realistic international comparisons. It’s commonly claimed Australia has lost a decade due to the ­climate wars and most other nations are thus far ahead of us. This is complete baloney based on a failure to take note of the most ­elementary facts of international life. In most developed nations, ­including Australia, greenhouse gas emissions have been either steady or declining for more than a decade.

A forest fire in Hrensko, Czech Republic this week.

The great big growth in emissions is in developing and middle income nations like China, India and Indonesia. In case those who claim we are uniquely disadvantaged haven’t noticed, most of Western Europe, which has gone much further in de-industrialising and embracing renewables than we have, is suffering a crippling ­energy crisis.

Western Europe depends on Russian gas. Germany used Russian gas to enable it to close coal-fired power stations and, very foolishly, nuclear power stations. The most stable nation in energy is France, because it relies so heavily on nuclear energy. Germany, like other Europeans, has restarted coal-fired power stations.

Germany wants to sanction Russia, but then objects to Russia not selling it more gas. Germany demonises fossil fuels but is completely dependent on gas. There is a parallel in Australia. Victorian Premier Dan Andrews wants more Queensland gas. But Victoria would be producing its own gas if his government had not placed so many prohibitions, restrictions and moratoriums on gas.

Russia is making as much money as ever from its energy ­exports. It sells energy to non-Western nations which are not boycotting it, such as China and India. And the gas it still sells to Europe it sells at sky high prices. Far from the West crippling Russia through energy sanctions, Moscow has intentionally turned down the volume of gas it will send to Europe, both to put Europe under pressure and to prevent Europe from filling up its gas reserves heading into winter.

As a result, the European Union has made a deal among its members to voluntarily reduce gas consumption by 15 per cent. But if it’s a cold winter in Europe, watch out for big domestic political trouble. In Britain, Tory leadership front runner Liz Truss is promising to cut green energy levies because of soaring energy prices, and inflation generally.

And in the United States, far from the climate wars being over, Joe Biden cannot get his climate plans legislated. The Democrats won the White House and both the Senate and the House of Representatives and yet the US political system will not pass Biden’s climate measures. Republicans are overwhelmingly likely to win the House in November and more narrowly favoured to win the Senate. That puts Biden’s climate agenda into complete reverse.

Canada has less political division over the issue but its big adjustments are ahead.

Very few mainstream Western political leaders any longer champion a let ’er rip attitude to greenhouse gases, ignoring or rejecting the aim of reducing emissions.

In every society, big changes produce big reactions. Australia is not remotely an outlier in finding climate policy difficult. Nor has our economy suffered in international comparisons. If this “wasted” decade has in fact seen more mining than would otherwise have occurred, then we enter the big adjustment period from a higher wealth base. That’s a good thing.

Very few mainstream Western political leaders any longer champion a let ’er rip attitude to greenhouse gases, ignoring or rejecting the aim of reducing emissions. But there are hugely lively debates about how to reduce emissions at a reasonable cost, how to balance climate action with economic growth and prosperity.

Let’s tease out a little more the four opening contentions of this piece: coal is not stranded, nor are fossil fuels generally, resources and minerals are irreplaceable in our economy, and moving to net zero will be expensive and reduce living standards.

In 1990, coal accounted for 37 per cent of global electricity. In the more than 30 years since, how has that figure moved? Coal now accounts for 38 per cent of global electricity. The price of coal is very high. Thermal coal is trading around $US410 ($586) per tonne and coking coal around $US250 ($357) a tonne.

These prices benefit not only coal mine workers and owners. The Queensland government has massively hiked coal royalties and is basing its budget projections on the long-term maintenance of high coal prices and high production. The new hospitals it plans will be funded by coal. That’s true of progressive governments around Australia. Every progressive policy is funded ultimately by coal, iron ore and gas.

Australia is not a dominant producer of coal. China produces vastly more coal than we do. Nor is Australia the biggest coal exporter, that’s Indonesia. We produce about 5 per cent of global coal. Far from having a stranded asset, coal miners are making huge profits. As I’ve written before, China has 1100 coal-fired power stations in operation and another couple of hundred planned or approved. It has approved the increase of coal production by 300 million tonnes a year. Beijing is even thinking of getting rid of its embargo on Australian coal because it prefers our higher quality coal. In much of Asia, coal continues to expand.

Global coal production is only just fractionally below the peak years of 2012 to 2014.

Demand is growing and total coal production could well reach a new peak this year or next.

What’s true for coal is doubly true for gas. In 1990 gas accounted for 15 per cent of global electricity. It’s now 23 per cent and growing. Despite many Western banks and development agencies saying they will not finance any new fossil fuels, the EU has decreed that gas is to be classified as a green and sustainable energy source, provided it’s seen as a bridge to renewables. The influential Economist magazine, fully committed to the climate change crusade, recently fulminated in its editorial against “silly prohibitions by banks on gas projects”.

Gas has been central to greenhouse reductions in developed economies. Although more expensive than coal, gas has substituted for coal and produces fewer emissions. Our north Asian trading partners, such as Japan and South Korea, have substituted Australian gas for coal and thereby reduced emissions. Europe, like Victoria, has been extremely ambivalent about developing its own gas and so has become reliant on Russian gas. Renewables have not been able to do the job.

The reason is simple. Renewables don’t work all the time and there is no technology which can store sufficient energy to cover the gaps. So you need a vast back-up system. The more of your energy is renewable, the more exposed you are to your back-up system.

The global head of energy at the giant accounting firm KPMG, Regina Mayor, said in a press interview this week that the world simply cannot afford to have no new oil, gas or coal projects. She said: “I don’t believe the planet can cope with no new oil and gas and no new coal because we still have a society that needs energy and we haven’t managed our way through the energy transition.”

She encouraged Australia to develop its natural resources.

It’s certain the transition from fossil fuels to renewables will take longer and be more expensive than Green activists and politicians believe or pretend. But a lot can be done along the way. Technology is making gas itself cleaner. If the transition is too rushed, whatever the elite consensus might be, energy security will collapse, producing a popular backlash which will restore much more intensive greenhouse gas emitting technologies. And that is not even to factor in the effect on the big, growing emitters like China, India, Indonesia etc.

Bjorn Lomborg cites a McKinsey study which says that if all the politicians kept all their promises to achieve net zero by 2050, this would cost the global economy $US5 trillion a year for the next three decades. Climate activists would be better advised to be honest about the costs. That’s the only way to achieve a politically sustainable policy position.

Australia is both uniquely challenged, and uniquely blessed, by our natural endowments and our economy’s structure. In 2021-22 minerals and resources earned Australia $405bn in export income. Coal was a whopping $97bn. This is less than the $133bn we earned from iron ore, but it’s still immense. Similarly, oil and gas, mainly gas obviously, earned $83bn in export income. If anything, the $405bn figure is set to ­increase, as the year in question was partly affected by Covid. The sector employs 256,000 people ­directly and probably accounts for 1.1 million jobs if services and supply are added in.

Australian society cannot do without these moneys and maintain anything like our current living standards.

There are many big projects set to go in gas, and to a much lesser extent oil. But Australia’s approval process is tortuous and absurdly slow. Here is where the at least rhetorical division between Albanese and his much more timid and equivocating cabinet is important. Albanese rejects banning new gas and coal projects and eloquently explains why. No other cabinet minister has made an explicit defence of this particular, key point.

Given the climate hysteria of the moment, and the natural desire of new cabinet ministers to present as climate heroes, the ­rhetorical cowardice is understandable but dangerous. A social democratic centre left government must beat off attacks from the left and the right. It will be a ­repudiation of Albanese, and turn him into a liar, if Labor makes new projects effectively impossible through insane burdens of regulation. Chris Bowen’s comments have tended to hint in that direction.

A party of government, as opposed to a party of protest, makes key compromises, and balances the competing interests, within its program. It doesn’t make fundamental policy in negotiation with extremist groups like the Greens.

On the ABC’s 7.30, Albanese was challenged to stop coal exports. He replied: “If Australia today said we are not going to export any more coal, you would see a lot of jobs lost, a significant loss to our economy, significant less taxation revenue for education, health and other services.”

Cutting our coal exports wouldn’t reduce global emissions, Albanese explained, because they would be replaced “with coal from other countries that’s likely to produce higher emissions because of the quality of our product”.

Albanese is right in this, but he’s contradicting large, if fatuous, sentiments of the climate change religion. That’s what reality demands. (I still think Labor’s targets are too big and too expensive, but its program at least exists more or less in the real world.)

It’s acutely dangerous for any government to leave all the heavy lifting in advocacy of a key contentious policy to its Prime Minister. In its own long-term interests, Labor should argue this case against the Greens as much as it argues its ambitious targets against the coalition. Albo can’t carry it all by himself.