Coal Igniting Economic Havoc: The Fiscal Paramountcy of Renewable Energy in Australia

Coal Igniting Economic Havoc: The Fiscal Paramountcy of Renewable Energy in Australia

Published 15 Oct 2017

The Australian government presently seems determined to continue the expansion of coal production. In contrast, the international community has been decreasing its coal consumption, and is instead, switching to zero-carbon energy sources. If Australia’s policies do not soon reflect this transition from non-renewable to renewable energy for economic gain, the nation may face financial difficulties due to this mismatch. The Australian Government would find itself locked into an unsustainable situation where the state would need to subsidise the coal industry to maintain economic growth.

This paper commences with a discussion on Australia’s economic reliance on coal exports to China, India, and Japan, and the movement away from non-renewable energy sources by these three states. Here, we see how the Australian Government is investing in a declining industry. We explore the reasoning behind why the Australian Government continues to subsidise the coal industry, before moving onto the health risks and costs of heat waves that will rise in frequency as a repercussion of global warming, which will burden the Australian economy due to the additional strain on hospital resources. This paper concludes with a discussion on a potential solution for Australia to ensure a prosperous financial future.

Changing Coal Consumption Practices In China, India, and Japan

Between 1993 and 2002, Australian coal exports rose from 131.8M tonnes to 273.6M tonnes, totalling an increase of 50 per cent. During the same time, domestic consumption experienced only a 20 per cent increase, growing from 53.9M tonnes to 66.3M tonnes. It is evident that the Australian coal industry is dependent on coal exports to maximise financial returns.[1] In fact, exports alone from 2011 to 2012 accrued $210 billion in revenue to the Australian economy, in contrast to 2006 to 2007, which amounted to $87 billion. The growing demand for Australian coal has been a result of the increased consumption by countries such as China and India.[2] These two countries are projected to amount to three-quarters of future coal demand growth in non-OECD countries. Based on this projection, the future energy policies and consumption levels of China and India will undoubtedly influence Australia’s coal prospective profitability.[3] However, these projections have failed to take into account the recent actions and events towards decarbonisation occurring in China and India.

Since the 2013 peak, when there was a 3.7 per cent rise in China’s coal consumption, the demand for coal has decline. In 2014, the nation’s coal consumption fell by 2.9 per cent and in 2015, a further 3.7 per cent. On the other hand, solar capacity increased by 74 per cent in 2015 and wind by 34 per cent.[4] China has now set world records for producing the most solar power capacity per annum.[5] In 2015, per hour, the nation installed enough solar panels to cover one and a half football pitches, and in 2016, that number doubled to three football pitches.[6]

Similarly, India is increasing their consumption of renewable energy, with the prediction that 57 per cent of India’s electricity by 2027 will come from clean energy.[7] The declining prices of solar energy have further encouraged the country’s shift to renewables. A large coal-power utility tariff currently costs five cents per kilowatt-hour in contrast to a 500-megawatt solar facility, which sits at six cents. This price decrease means that over $11 million of existing coal power plants are no longer economically viable due to the prices of importing coal,[8] which costs the nation $62/ton imported from Newcastle, Australia.[9] It seems then that the two nations on which Australia is most reliant on for unceasing fiscal growth through coal exports are rapidly altering their energy supply to renewable sources.

Profits from Australian coal exports have also been reliant on Japan’s consumption levels. In recent years, Japan has become a major source of growth for the Australian coal industry, with 49 per cent of all Australian exports being purchased by Japan.[10] During the 2011 Fukushima disaster, which occurred when a major earthquake and tsunami hit Eastern Japan, backup power systems failed causing nuclear reactors to cool. This led to hydrogen explosions, the releasing of radioactivity, and the melting of fuel.[11] This incident resulted in the closure of most of the nation’s nuclear reactors, which signified the loss of more than a quarter of all the country’s generated energy.[12] As a result, Australian coal quickly became Japan’s main energy source, [13] amounting to a total of 85 per cent of the nation’s energy supply and costing the country $40 billion in annual expenses.[14]

Japan’s consumption of Australian coal may seem encouraging for Australia’s continued fiscal prosperity through the exportation of coal, but the sheer costs of importing coal – which cost the government $61.60 per megaton for coal from Newcastle, Australia in April 2016 to March 2017,[15] and from October 2017 onwards has leaped to $100 per megaton[16] – may enforce change in Japan. Following the Fukushima disaster, which raised the nation’s reliance on coal imports, electricity prices have increased by 30 per cent for industries from four cents to six Australian cents per kilowatt-hour.[17] Due to these costs, the government eagerly wants to revamp its nuclear energy supply, hoping that it will make up 20 to 22 per cent of Japan’s energy needs by 2030.[18]

Consequently, Japan is beginning to install more solar panels. On 1 July 2012, a feed-in tariff (FIT) was introduced in Japan to promote the expansion of renewable energy.[19] The updated version in August 2012 requires that power should be derived as much as possible from renewables to expand the zero-carbon energy sector.[20] Through the FIT, within two years after the Fukushima disaster, Japan built 10.5GW of renewable photovoltaic (PV) energy and is now the second fastest installer of PV in the world after China.[21] If we are to consider the declining tariff price of solar energy that occurred in India 2017,[22] it is probable that Japan will be encouraged to accelerate their uptake of renewables to ensure electricity bills decrease over time.


Australia’s Unceasing Coal Production and its Risks

Even with China, India, and potentially Japan moving away from coal consumption, Australia has maintained its growth of coal production. Black coal production between 1960 and 1990, rose 8 per cent yearly, and between 1990 and 2010, by 4.5 per cent annually. Growth is only expected to continue, sitting at around 1 to 2 per cent per annum for several decades to come.[23] However, this growth temporarily stalled, declining from 12,288 petajoules in the 2014-2015 fiscal year to 12,157 petajoules in 2015-2016, a 1 per cent reduction which occurred due to the decline of some mines and the complete closure of others in New South Wales and Queensland because of rock falls and bad weather.[24]

This constant growth of coal production in Australia reflects the nation’s climate change policies. Current Australian climate policies fall under the concept of weak ecological modernisation (EM).[25] EM promotes “green capitalism,” which refers to the process of making the market productive and sustainable by investing in technologies that minimise the human footprint. There are two strands of EM. Weak EM involves managing the problem by only making alterations to existing technologies that damage the environment by making them “clean.” For example, Australia promotes carbon capture and storage as a solution to decrease CO2 being expelled into the atmosphere. Meanwhile, strong EM attempts to address the core of the problem such as by reducing coal consumption and increasing renewable energy use. Weak EM garners more interest out of the two; it is seen as resulting in the least disruption to everyday life. It only calls for relatively minor alterations that ‘green’ the economy, not for drastically changing consumers’ consumption levels and reconstructing the current technological foundations of industries.[26]

The current popularity of weak EM by policy officials in Australia carries risks. Clean coal technologies can uphold the coal industry,[27] which in turn, can prevent investments into renewable energy. This issue reflects the concept known as carbon lock-in. Coined by Gregory Unruh,[28] carbon lock-in refers to how technologies that run on fossil fuels have become embedded into our society through government policies and subsidies. This process leads to the rise of the Techno-Institutional Complex (TIC), as technologies such as electricity generation and transportation become interdependent, and therefore create positive feedbacks.[29] In other words, a cycle is formed, where industry A feeds the production in industry B, which in turn leads to more of A.[30] Put simply, due to carbon lock-in, if we attempt to move away from fossil fuels we would impact all our existing technological infrastructures.[31] Therefore, if we decrease the use of coal, we also face a decline in production of other products and services.[32]

Because of carbon lock-in, even with Australia’s neighbouring nations switching to renewables, the Australian Government chooses to subsidise the coal industry to maintain economic growth. It is estimated that the Australian Government subsidises coal production by $1.6 billion per annum.[33] However, if China’s coal demand continues to fall as extrapolated, Australia may lose approximately $12 billion worth of thermal production.[34]


The Ramifications of a Business-As-Usual Trajectory

If Australia continues to produce coal on a business-as-usual basis, the nation would be forced to cope with money loss from decreased coal demand while Australia’s neighbours continue to expand their renewable energy sectors. Australia would simultaneously face a declining economy while dealing with the costly issue of global warming because of exported and domestic coal emissions. As a nation, Australia alone represents 1.5 per cent of the total worldwide carbon footprint. Add our exports onto the total, and we reach 3.7 per cent. In other words, Australia’s total cumulative CO2 emissions, ranks as the sixth largest emitter, sitting only behind China, the United States, Russia, India, and Indonesia.[35] These emissions give rise to droughts, coastal flooding, and heat waves, all of which have consequences for public health and economic growth.[36] Therefore, Australia is currently promoting what economists call market failure – where the market fails to oversee the costs of an action to others who do not partake or receive benefits from an activity.[37] In other words, environmental market failure is external, as it disproportionately impacts people who are not emitting large sums of greenhouse gases too gain profit.[38] Australia often overlooks the social costs of burning CO2.[39]

Take, for example, the fact that projected heat waves – days that reach over 35 degrees-Celsius – would rise if we continue emitting CO2 on a business-as-usual trajectory. Melbourne annually averages nine heat waves, but by 2100, this number will spike to 27. For Sydney, 3.3 days of over 35-degree heat will rise to 14, and Perth, from 27 to 72.[40] Exposure to heat waves can cause cramping, heart attacks, and strokes. The increased demand for medical aid may be disastrous, as hospitals are not equipped to support these events, such as in 2004 when heatwaves caused power outages, which affected some hospitals. This issue can be exacerbated if bush fires, asthma, and waterborne and vector diseases, which all increase due to heat waves, place further strain on the nation’s hospitals.[41]

This example is only a small sample of what Australians could expect in the upcoming future. Australians should also expect the continued destruction of the Great Barrier Reef due to global warming; something we are already seeing signs of. [42] As a result, tourism will be negatively impacted, amounting to a $1 billion loss for the Australian economy.[43]


Carving a Pathway to a Zero-Carbon Based Economy

It is therefore economically and socially paramount for us to challenge the Australian Government’s policies on the mitigation of climate change to ensure economic stability and to maintain the health of all Australians. Thus far, the leading solution in Australia against climate change was the 2010 Labour Government Emissions Trading Scheme (ETS). ETS refers to a process where the government issues tradeable permits. These permits limit companies to a certain volume of greenhouse-gas emissions.[44]

Unfortunately, the Labour Government pushed for an Australian ETS without explaining the potential social costs of global warming for the country in the future.[45] Emerging as a result of the Australian ETS, the carbon tax, though only directed at large companies such as electricity providers that rely on carbon-intensive coal to produce cheap energy, ultimately impacted households and small businesses. Goods and services that were by-products of the then taxed coal all increased.[46] Ultimately, public support declined. Whilst 68 per cent of people viewed climate change as a highly relevant issue in 2006, this number dropped to just 40 per cent in 2013.[47] Therefore, educating Australians on the social costs of maintaining coal production to feed domestic and overseas consumption may be able to promote public support for the mitigation of climate change, and hopefully deter Australia from carbon lock-in.[48] Citizens must be empowered with the knowledge of the social costs, and the skills and confidence to push for change towards becoming a zero-carbon nation.[49] Citizens can then use this knowledge to demand the reimplementation of the Australian ETS that was repealed in 2014.[50] The challenge to change the Government’s stance on climate change is not easy. However, only with a large national backing that demands an ETS would the Australian Government be likely to finally act.[51]

With an ETS, Australia has a chance of breaking the carbon lock-in. Currently, we are stuck in a “technological trajectory,” meaning that as fossil-fuel based technologies are known to reap substantial financial returns, research money continuously feeds into coal-based energy sources, so the existing product is improved. Furthermore, the Australian Government does not want to decarbonise even with the decline in consumption by main exporting countries due to the short-sighted benefits of “job creation and for the signals it provides to potential investors in the region.” [52] Meanwhile, alternative renewable energy sources, which have yet to prove their potential to increase financial gains, symbolise a gamble for potential funders, and therefore have little chance to obtain funds and to become more efficient and profitable.[53] However, the ETS would help ensure that coal-based production would experience increased production prices, and thus, spur on research in these alternative sectors as investors seek for more profitable avenues.[54]

As early research in renewable energy would help discover modes of producing alternative energies at increasingly cheaper prices, research would help boost confidence in the country, and targets and trajectories to decrease emissions would become more ambitious.[55] Research would help prevent Australia from being forced to make a fast transition that would interrupt social reproduction. For example, 25 per cent of Victoria’s energy supply was lost with the closing of the Hazelwood power station early 2017. The plant was aged and would require $400 million in repairs, which the owner deemed unviable.[56] This sudden loss of energy means that during the summer, the increased demand of energy will not match the smaller supply, leading to power shortages that are expected to continue for four years.[57] This supply issue could potentially have been mitigated had greater research into renewables been encouraged.

Furthermore, early research can ensure that the nation is fully equipped to adapt to climate change, such as by finding infrastructure designs that are more efficient in keeping occupants cool to decrease the effects of heat waves.[58] Additionally, the exportation of newly developed renewable technologies would be possible. Australia has the potential to contribute to the electricity generation market,[59] as Australia has an abundant source of solar and geothermal energy.[60] Additionally, hydrogen exports to power vehicles is now a possibility. Liquid hydrogen is difficult to transport over long distances as it has a low density, but as discovered by the Commonwealth Scientific and Industrial Research Organisation (CSIRO), using ammonia can form a higher hydrogen density, making the substance transportable.[61] These sources would help secure Australia’s future economy while the nation makes the switch from fossil fuel-based energy to renewables.



Through examining the Australian Government’s support of the coal industry in contrast to the renewable energy movement in China, India, and Japan, it is evident that Australia must begin to alter its dominant power source. As noted, the threat that global warming brings, such as heat waves, would be costly to the health of Australians and the economy at a time when we would be vulnerable due to economic losses from declining demand for Australian coal. An ETS, therefore, holds the potential to smooth Australia’s transition over to renewables in manageable increments. Furthermore, if Australia is to secure continual financial growth, research must now expand further into the renewable sector to explore prospective renewable energy for exportation as well as domestic use.

By Kayla Slade



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[3] The Centre for International Economics (2014) The contribution of mining to the New South Wales economy. The Centre for International Economics: Canberra & Sydney, p.48.

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[6] Myllyvirta, above n 5.

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[14] Slusarska & Orlando, above n 12.

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[22] Johnston, above n 8.

[23] Lucas, above n 2, p.54-55.

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[29] Unruh, above n 28, p.819.

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[32] Unruh, above n 28, p.819.

[33] Lucas, above n 2, p.59.

[34] Lucas, above n 2, p.15.

[35] Christoff, above n 25, p.351-352.

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[39] Cleetus, above n 36.

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[51] Power, Collin, above n 50, p.222.

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[54] Garnaut, above n 37, p.425.

[55] Garnaut, above n 37, p.306.

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[58] Garnaut, above n 37, p.423.

[59] Garnaut, above n 37, p.423.

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