In its economic assessment report of the CPRS’s treatment of coal mining, ACIL said the cost to the sector would be in the realm of $A14.35 billion ($US11.01 billion) using 2008-09 coal prices, while transitional assistance would recover only 3% of this amount, at $441 million.
ACIL also said coal production would be 22 million tonnes per annum below business as usual.
“This would mean state governments would forgo significant coal royalty revenue,” the consultancy said.
As part of the research, ACIL surveyed 75 coal mines accounting for 86% of coal production in New South Wales and Queensland, including over 80% of coal exports and 100% of domestically used thermal and metallurgical coal.
From the survey results, ACIL found some inaccurate assumptions were made in the CPRS White Paper.
While the paper states the vast majority of coal production is below the emissions-intensive trade-exposed (EITE) threshold of 1000 tonnes of carbon dioxide emissions per million dollars of revenue, ACIL argues this is not the case.
ACIL says 57% of coal mines are above the threshold, with these mines accounting for 53% of surveyed coal production.
The paper also says nearly 90% of coal production comes from mines that have less than 0.05t of carbon dioxide emissions per tonne of coal extracted, while ACIL says only 22% of surveyed production was in this category.
Contrary to the paper’s claim that a small number of coal mines are very emissions-intensive and will face a significant cost impact from the scheme, ACIL said 15 (19%) of the surveyed mines would fit the bill by having over 2000t of carbon dioxide emissions per million dollars of revenue.
While the stated objective of the EITE is to ensure equitable application within and across industries and to avoid adverse effects on competitiveness, ACIL said the CPRS would have significant detrimental effects on the competitiveness of the coal industry and the exclusion of coal mining from the EITE program was highly discriminatory.
ACIL also criticised the government’s proposed Coal Sector Adjustment package.
The package offers $100 million per annum for five years to be distributed among “gassy” mines and $250 million in matching grants to coal mines for innovative abatement projects.
“Combined these elements represent less than 4.5 per cent of the direct cost impact on the industry during the first 10 years of the CPRS, compared to support of more than 60 or 90 per cent for all other EITE activities,” the consultancy said.
ACIL said including the coal sector in the EITE program would result in fewer premature mine closures from the implementation of the CPRS, significantly reducing job losses and royalty revenue.
Premature mine closures
In its forecasted impacts of the CPRS in the first 10 years, ACIL said 12 premature mine closures could occur by 2015, 13 by 2018 and 16 by 2021.
NSW was seen as being more affected than Queensland.
ACIL predicted 2300 coal sector jobs would go from NSW and 200 Queensland jobs would vanish by 2015.
For the following years there were no further job losses forecasted for NSW, while Queensland CPRS-related job losses would total 700 by 2018 and 1000 by 2021.
In calculating the total job loss figure of 9900, ACIL assumed each coal job loss would result in three job losses outside the sector.
“The multiplier reflects the initial change in employment in the coal mining sector plus production-induced effects. It does not include consumption-induced effects,” ACIL said.
Concerning possible consumption-induced effects, ACIL indicated they could trigger greater total job losses but estimates of these were not as reliable as those confined to production-induced effects.
Loss of investment
ACIL warned the CPRS could be expected to discourage investment in the establishment of new mines or expansion of existing mines.
In making this argument, ACIL expects the CPRS would lower rates of return on new capital investments in the industry, especially in comparison to projects in other countries.
The consultancy is also concerned with the uncertainties the CPRS would create, which it said included the starting market price for emissions, the trajectory of emission prices over time, and the timing, stringency and evolution of emission constraints overseas.
Model for measuring impact
As well as drawing on its survey, ACIL made its forecasts by establishing a reference case.
The reference case used an emissions price trajectory derived from the CPRS-15 case from the government’s White Paper on the new policy released in December.
ACIL said it chose the CPRS-15 scenario, rather than the CPRS-5 scenario, as a result of the government’s shift to tighter emission constraints as announced on May 4.
For other assumptions, prices of the various coal types were based on forecasts by Australian Bureau of Agricultural and Resource Economics and 13 investment banks.
Future electricity prices were derived from ACIL’s electricity price model, which was used as a source in the government’s White Paper and Treasury report.
ACIL’s report was backed by the Australian Coal Association.
On the report’s findings, Climate Change Minister Greg Combet told Reuters it was effectively a $A10 billion claim for assistance.
He also told the news service the report was wrongly based on upper-level carbon reduction targets, which will be adopted if the world acts together to reduce emissions.
Combet told Reuters the government was working with the coal industry and high-emitting mines would get assistance from a $750 million package.