One such company is Anglo Coal Australia, which is now including carbon cost sensitivities for mining emissions in its consideration of new mining investment proposals. Anglo is not saying what dollar value it is applying to pay for a carbon penalty, except that its figure is well below the $US85 per tonne of C02 equivalent floated in last year’s controversial Stern Report on climate change and the role of carbon-based industry on global greenhouse gas emissions.

 

Regardless of whether or not miners believe that extracting coal contributes to global carbon emissions, it is becoming increasingly certain that a carbon penalty will be a reality of mining economics; sooner rather than later.

 

The issue has been spotlighted – and left far from resolution – by separate legal actions recently in Queensland and New South Wales. In both actions, conservation groups attempted to penalise new coal mining operations in relation to the costs of the downstream uses of the coal to be mined. Both cases failed to extract a fiscal penalty for these downstream costs, but the actions pointed to the fact that the issue is not going away.

 

In the New South Wales Land and Environment Court, an environmentalist brought a case against Centennial Coal seeking to include downstream emissions in the terms of reference of the statutory environmental assessment (EA) for Centennial’s Anvil Hill mine development.

 

The green argument was that Centennial’s formal EA did not – but should – deal with downstream greenhouse emissions produced as a result of Anvil Hill coal being burnt by end-user customers. The environmentalist put forward the Stern Report figure of $US85/t CO2 equivalent as the amount Centennial should be prepared to pay for the downstream emissions.

 

The figure was dismissed by Centennial Coal general manager of sustainable development Donna Dryden, as an outlier cost damage estimate that was overly pessimistic.

 

However, in Queensland, the Land and Resources Tribunal firmly rejected green arguments – led by the Queensland Conservation Council – about downstream emissions from Xstrata’s proposed Newlands expansion and recommended that the necessary mining rights be granted.

 

Lawyers point out that the court in NSW was reviewing an administrative decision “along the path to project approval”, while in Queensland, the tribunal was actually “performing a step” in the project approval path. In the most basic terms, the court in NSW decided there was a link between mining and coal end-use and emissions – and that they should be taken into account.

 

However, the court’s “finding” amounts to a recommendation for appropriate authorities – ie, the State Government – rather than being a formal, binding interpretation. So, Centennial is able to proceed towards commissioning Anvil Hill, while the NSW court finding is considered at higher levels.

 

What these separate events foretell is that developers of new mines would be wise to expect to be paying a price to offset greenhouse emissions from mined coal sometime in the future. How this price is set and what economic model is devised for any future carbon trading regime are issues a long way from being realised, but Anglo has demonstrated that companies are beginning to pre-empt an increase in mining costs as a direct outcome of the climate change/GHG debate.

 

The two possibilities being mooted for taxing coal mines are a carbon tax and an emissions trading scheme. The first point to make is that taxing any individual mine is both arbitrary and meaningless. Even a $US10/t carbon equivalent tax on a mine would mean only the most efficient coal mines could be developed. Also, coal sold into countries like Japan would effectively be subject to double taxation, given that Japan is already in an emissions trading scheme.

 

Emissions trading is seen by some coal producers as a potentially elegant solution compared with the bluntness of a tax, but only under specific conditions. Some believe it could work if introduced across the globe (including in developing countries) in a mature market, with mature emissions measuring and reductions technologies.

 

It would need to be consistent, measured and managed, but the reality of this happening is unlikely, considering recent events with carbon trading in Europe, where the original carbon trading market is in virtual collapse.

 

A carbon tax would, some believe, be less burdensome to producers – if introduced universally and if seen to be fair. Increased costs are then simply passed on to consumers, making coal and its end uses more expensive.

 

Other than factoring carbon costs into planning, several aspects of Anglo’s broader business strategy also reflect an expectation of future carbon constraints, according to Anglo Coal principal advisor of business relations Susan Johnston. These include technology investment in carbon capture and storage for the planned Monash Energy project in Victoria, and the expanding methane capture and utilisation projects operating at the company’s coking coal mines in Queensland.

 

Emissions reduction was also a consideration for Anglo in electing to install conveyor haulage over truck haulage at the new Dawson operation in Queensland. But, as Johnston warned: “Carbon pricing should be seen as just one measure in a portfolio of policy measures required to drive low emissions technology development and deployment. A key issue with any forms of emission trading is that it will not produce an up-front push to develop clean coal and carbon storage technologies.”

 

This is because these technologies are currently in their infancy and companies developing and testing them will have to pay a disproportionate cost before they are commercial.

 

At this time, with many observers confidently predicting the arrival of a carbon tax – in some form – soon after the dust has settled from this year’s Australian federal elections (regardless of which party wins/retains government in Canberra), the issue of “penalties” for GHG emissions, and at what stage of the extraction/end-use cycle they are to be applied, is in limbo. Some believe these issues may go beyond government and into the High Court. Regardless, Anglo Coal is providing a lead for industry. –Marian Hookham

 

Article courtesy specialist coal consultancy and information provider Barlow Jonker, Coalportal.com