The threat to and the dangers of coal

Coal is a huge industry in Australia. It employs more than 30,000 people and as many again in coal related industries such as transport, engineering services and the development and operation of infrastructure. More than 120 coal mines are in operation in Australia and that number is expanding with most growth occurring in Queensland and New South Wales.

In 2009 Australian coal exports are expected to be valued at more than $26 billion, while the domestic market for coal will use about 75 million tonnes: 65 million tonnes of this is used to generate electricity while the balance is used for production of metals, chemicals and for smelting.

Coal is the most reliable and cheapest source of electricity, costing only 60 per cent of the price paid in Europe. This gives Australia an important competitive trading advantage. It is also a major source of government revenue. This takes the form of GST paid to the Commonwealth and Mining Royalties paid to state governments, particularly important to Queensland and New South Wales.

Foreign exchange earnings from the export of coal make an important contribution to national reserves. And then there is the question of the billions invested in power stations which rely on coal and the need to meet increasing demand for base load electricity. The coal industry is therefore rightly seen as having a very important position in the Australian economy.

Little wonder that federal and state governments should refuse to contemplate any action which would harm the future of coal, even though coal is by far the largest source of CO2 pollution in Australia. On the other hand they are prepared to invest hundreds of millions into so called clean coal technology better known as Carbon Capture and Sequestration (CCS).

They argue that development of CCS technology will enable all countries dependent on burning fossil fuels for generating electricity to continue doing so without polluting the atmosphere. This would preserve the Australian coal industry, and significantly reduce greenhouse gas emissions.

What they don’t tell us is that the technology is in the early stages of development, that it is unlikely to be available much before 2020, or that for the next decade there will be on-going, massive pollution of the atmosphere.

CCS involves capture of CO2 gas at the point of emission, its removal from chemical scrubbers used to capture it, applying pressure to liquefy it, then transporting it to an often distant secure underground depository.

The capital cost of retrofitting the technology, if developed, will be considerable. The recurrent operating costs, particularly for the energy required to liquefy, transport and inject the CO2 into the storage area is great. Combined, these will increase the cost of generating electricity from coal to the point where it will prove uncompetitive with electricity produced from geothermal and, ultimately, solar-thermal steam.

A second measure taken by the Commonwealth Government to protect the coal industry is to subsidise both the production and use of coal. In addition, it has promised further subsidies in the form of free emission licenses for our largest polluters, electricity generation and smelting, when an Emissions Trading Scheme (ETS) is introduced in 2010. This will spare them the cost of having to buy licences on the open market and reduce the level of tariff increase necessary to pay for emissions.

Free emission licences are more than a subsidy. They are also a means of keeping the price of electricity generated from fossil fuels below that generated by other means, particularly from renewable sources. They distort the market and ensure that electricity produced from renewable sources are less competitive than coal or other fossil fuels.

This does nothing to send a price signal encouraging consumers to use less electricity and so reduce dangerously high CO2 emissions. How then is government to achieve these reductions? What if CCS technology proves too expensive or inefficient? Can cheaper electricity be produced from renewable sources? If so, what effect will this have on coal?

Geothermal energy

Geothermal energy is produced by the decay of radioactive substances contained in granites which heat it up to 300C. Unlike other countries, Australia has vast deposits of this granite just 3-5km below the earths’ surface and the technology to locate and delineate hot rock deposits and drill into them. Known deposits are sufficient to supply Australian electricity needs for several hundred years.

When water passes over hot granite it causes it to fracture, creating an underground heat exchanger and superheated steam under very high pressure. This forces the steam to the surface through wells drilled into the granite. The steam is piped through a surface heat exchanger, causing a separate fluid to heat producing steam which drives a turbine. The turbine turns a generator which produces pollution-free base load electricity.

On the basis of known costs, it is estimated that geothermal generating costs will be between $72-$90/MWh by 2020, the lower cost being associated with the hottest rock. The cost of generating electricity by burning fossil is estimated to be between $76/MWh for coal and up to $90/MWh for gas by 2020.

Generating costs from use of steam produced by geothermal rock or burning fossil fuels are similar, until adding on the cost of CCS technology or emission licences required by CO2 emitting fossil fuels. This makes geothermal electricity much cheaper than that produced from coal. Given a choice, the market will always purchase from the cheapest source and on an even playing field, geothermal is far cheaper.

This will attract investment into geothermal electricity, speeding up its development and ability to replace coal as the prime source of energy. By 2020 it can be expected that geothermal will have met our increasing demand for electricity (3 per cent/annum) and thereafter will eat into the domestic market for coal. By 2030 the domestic market will have been halved and by 2050 fully replaced by electricity produced from renewable sources, largely geothermal.

Sunlight

Sunlight is used to produce electricity directly using photovoltaic cells (PVC’s) or indirectly through concentrating its heat to produce solar-thermal steam to drive a turbine.

PVC domestic arrays convert 15 per cent of available sunlight into electricity although more efficient outcomes are achieved by concentrating sunlight onto very large PVC arrays, as proposed for the new power station at Mildura. Cost of production is presently well above that of burning coal and will remain so until significant improvements in PVC efficiency are achieved - an area of active R&D.

More efficient use of sunlight is achieved by using a large array of mirrors, a heliostat, concentrating sunlight onto an elevated heating chamber containing a substance which retains heat. The heat is used to produce steam, enabling electricity generation for over 18 hours a day. R&D into ways of bringing down costs are making rapid advances and are expected to make solar-thermal competitive with burning coal + CCS by 2018/23.

Countries dependent on coal, particularly coal importers, will opt for solar-thermal electricity generation as soon as costs are comparable. The effect on Australian coal exports will not be felt until about 2020, becoming more noticeable after 2030, dropping sharply thereafter and culminating in cessation of exports in the 2050s.

In conclusion, coal production for domestic use and export has a future of at least 20, at most 40 years. Domestic use of coal will be limited by the size and speed with which geothermal power stations can be built. Continued coal exports depend on the speed with which innovation reduces the cost of using solar energy. Rapid technological breakthroughs would result in speedier decline of coal, though unlikely much before 2030.

Mike Pope trained as an economist (Cambridge and UPNG) worked as a business planner (1966-2006), prepared and maintained business plan for the Olympic Coordinating Authority 1997-2000. He is now semi-retired with an interest in ways of ameliorating and dealing with climate change.

This is an edited version of a longer article, which can be found here.


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