Australian government sees net zero and coal coexisting

Australia is moving towards a carbon neutral by 2050 target but parts of the federal government say this can coexist with a vibrant domestic coal industry, with some suggesting a taxpayer-funded loan scheme to ensure continuing investment in the sector.

Australian prime minister Scott Morrison is expected to take a net zero by 2050 target to the UN Cop 26 climate conference in the UK's Glasgow later this month, although it will be a target based on offsets and carbon sequestration, rather than the closure of the nation's coal industry. The government's main goal is to protect coal, gas, heavy manufacturing and agriculture, while promoting the use of hydrogen, carbon capture and storage, and soil carbon, federal energy minister Angus Taylor said this week. Canberra will provide incentives to cut emissions rather than punishing polluters, Taylor added.

Others have gone further, with federal resources minister Keith Pitt last week suggesting that the government provide an A$250bn ($180bn) lending facility to firms wishing to invest in coal mining in Australia. This will fill the gap left by the exit of traditional lenders from the sector.

The last of Australia's four largest banks ANZ committed a year ago to exiting lending to thermal coal activities from 2030, leaving a small number of private equity firms, overseas corporates and private investors providing finance to the sector, with some banks also declining to finance metallurgical coal projects.

Record breaking thermal coal prices, while driven by firm demand ahead of the northern hemisphere winter, are exacerbated by low investment in the coal mining sector. Some mining firms are unable to expand because of regulatory delays, while most cannot balance the current strong prices against the risk of over investing in an asset that could become stranded in a low-carbon economy.

This investment equation is made more complex by the volatility in coal prices over the past two years, where most Australian thermal coal mines were operating at a significant loss in 2020, and by the ever shrinking pool of investors prepared to provide financing. The uncertainty caused by the change in trade flows, because of Beijing's informal ban on Australian coal imports, adds to why even the most bullish of coal supporters have been looking elsewhere for opportunities to invest over the past couple of years.

States go their own way

While the federal government is balancing the needs of its parliamentarians representing coal-producing regions against a wider community desire for action on climate change, some states are moving forward with their own plans. New South Wales, which exports the most thermal coal of all the Australian states, today announced an A$3bn hydrogen investment plan focused on developing green hydrogen hubs in the coal-producing regions of the Hunter valley and the Illawarra.

High-grade thermal coal prices continue to hit new highs on concerns about energy supplies heading into the northern hemisphere winter. Argus last assessed the high-grade 6,000 kcal/kg NAR thermal coal price at $228.21/t fob Newcastle on 8 October, up from $174.46/t on 10 September, $151.90/t on 30 July and $47.56/t a year previously. It assessed lower grade coal at $142.60/t fob Newcastle for NAR 5,500 kcal/kg on 8 October, up from $108.67/t on 10 September and $42.08/t a year earlier.

Premium hard coking coal prices have more than trebled from early May to hit $409.75/t fob Australia in mid-September before easing slightly. Argus last assessed the premium hard low-volatile coking coal price at $402/t fob Australia on 12 October, up from $110.95/t on 11 May. Lower grade metallurgical coal prices have also increased at a slightly lower rate.

By Jo Clarke

Thermal coal prices ($/t)

Metallurgical coal prices ($/t)