How Australia’s Election Could Save the World (But Won’t)
(Bloomberg Opinion) -- If there’s one issue at the center of Australia’s general election Saturday, it’s climate.
The opposition Labor party will “prioritize real action on climate change,” its leader Bill Shorten said in a speech in western Sydney Thursday. Prime Minister Scott Morrison, who once brandished a lump of coal in parliament to show his backing of the country’s mining industry, promised the same day to end the “climate wars.”
The gaps between the government and opposition are genuine. While Shorten has promised to cut Australia’s 2005-level emissions by 45% in 2030, Morrison targets a reduction of 26% to 28%. The governing Liberal-National coalition, meanwhile, faces regular backbench calls to publicly fund new coal generation and export projects.
At the same time, the titanic domestic political battle is cover for the vanity of small differences between the parties.
In terms of domestic generation, Australia is a minnow – but in exports it’s a superpower, vying with Indonesia for the title of biggest coal shipper and Qatar as the number one source of liquefied natural gas. As an exporter of fossil fuels, only Russia and Saudi Arabia account for more energy shipments than the 281 million metric tons of oil equivalent that Australia sends overseas each year.
The scale of that trade puts the domestic debate in perspective. The difference between the government and opposition emissions-reduction plans amounts to about 110 million metric tons of carbon dioxide equivalent in 2030, less than the current emissions of Belgium. The coal and LNG the government expects to be exported in 2024, however, will produce about 1.2 billion tons of CO2 when burned – a larger toll than any nation except China, the U.S., India, Russia and Japan.
That trade is firmly off-limits in the domestic political debate. Australia’s modern wealth has been built upon its exports of commodities, and no one wants to kill the goose that lays the golden egg. Within the last decade alone, Prime Ministers Kevin Rudd, Julia Gillard and Malcolm Turnbull have all been ejected from office in part as a result of getting on the wrong side of climate and energy.
Shorten, wary of a similar fate, has refused to be drawn into a fight even about Adani Enterprises Ltd.’s planned Carmichael coal mine – a vast emperor’s-new-clothes site in Queensland that’s unlikely to ever be built, despite what the political class affects to believe. Morrison, who’s torn between a coal-loving conservative and rural wing and greener right-of-center voters in affluent urban seats, has been treading carefully, too.
The fate of Australia’s energy exports is a debate the country needs to have, however – because its customers are already changing their appetites.
South Korea’s industry ministry promised last month to “drastically” reduce coal-fired generation by banning new plants and shutting down old ones, and lift the share of renewable generation as high as 35% by 2040, from 7.6% in 2017. Taxes on coal now amount to $60 a ton. Imports will fall by half by 2040, according to the International Energy Agency.
Japan is heading the same way. The environment ministry in March said it would oppose new coal plants and upgrades to existing facilities, while a swath of trading houses and financial companies including Marubeni Corp., Itochu Corp., Mitsubishi UFJ Financial Group Inc. and Nippon Life Insurance Co. are backing away from thermal coal investments.
A similar situation is prevailing in China, which started limiting Australian coal imports in January with little explanation. Whether Beijing is seeking to punish Canberra for some of its foreign-policy stances, or simply reduce imports as part of a policy of self-reliance, its reliability as a long-term customer is in question.
What about other countries in Asia? While India and Southeast Asia have often been portrayed as the last redoubts of coal demand, the falling cost of renewables suggests that’s not the case. In China and India, it’s already cheaper to provide electricity by building wind or solar than coal; in Vietnam, Thailand, and the Philippines, we’re likely to see parity within the next year or two.
Australia’s budget is benefiting from the fact that fossil-fuel exports have never had it so good. Yet growth has already plateaued, and is likely to switch to decline over the coming decade as the transition to renewables gathers steam.
Combined with faltering demand for iron ore – as rising scrap supplies and concerns about blast-furnace emissions drive a switch toward steel made in electric furnaces – the waning appetite for coal is likely to have a profound effect on the country’s international trade position within the next couple of terms of government. Australia’s politicians may not be making plans to deal with this new reality yet – but whether they like it or not, reality is making plans for them.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
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