Media Releases | 15th Oct, 2012

Economic analysis concludes brown coal expansion a pipedream

Monday, 15 October 2012

A new report examining the economics of developing Victoria’s brown coal resource has concluded that new markets for our brown coal are unlikely to emerge in the near future. The report, commissioned by Environment Victoria and undertaken by Economists at Large assessed the prospects for new domestic brown coal projects and large-scale coal exports.

The report Undermined or Overburdened? Victoria’s brown coal: an economic perspective finds that three factors prevent the development of viable new coal projects:

·         low quality and high moisture of Victoria’s coal resource,

·         the need to process brown coal to higher grades, and

·         the transport costs of getting Victorian coal to Asian markets

These factors make Victorian coal projects more expensive than their competitors, and therefore unlikely to be financially viable.

The report comes as the Baillieu Government is considering the first allocation of coal since the failed 2002 allocation. The Department of Primary Industries estimates that there are 13 billion tonnes of unallocated coal in the Latrobe Valley [1] which is equivalent to 13 mines the size of the Hazelwood mine.

Report author, Rod Campbell, from consultancy Economists at Large said today:

“Successive Victorian governments have tried to develop Victoria’s brown coal resource. They need to understand that the low quality of the resource, processing and transport costs present very significant challenges to entering world markets.”

“No market currently exists for coal of such low rank aside from local electricity generation.  Even if our coal could be processed cheaply, we are at a major disadvantage compared to producers closer to Pacific buyers, such as Queensland, Indonesia or Mongolia.”

“Even if proposed projects were viable, proponents’ estimates of employment impacts and royalty revenue to the state government are utterly implausible.”

“Victoria needs to accept that it is unlikely to ever export large quantities of coal-derived products. Any attempt to develop a major export industry is a gamble that commodity prices are going through a historic shift that other suppliers will not respond to.”

Environment Victoria Campaigns Director Mark Wakeham said:

“Allocating more coal is not just a poor environmental decision, it’s a poor economic one too. We’ve seen from past experience that coal companies promise projects and jobs which never materialise and that’s because the economics just doesn’t stack up. The sooner Victorian state governments get over their obsession with developing the coal resource the better.”

“The report concludes that commercial interest in receiving a coal allocation is less about developing actual projects and more about speculation and attempting to on-sell coal allocations.

“The Baillieu Government needs to rule out another coal allocation to avoid repeating the mistakes of the Bracks Government who allocated coal to three companies in 2002 for projects which never got off the ground.”

“The Latrobe Valley and Gippsland needs a regional development and transition plan that is based on real jobs and industries, not phantom ones.”



For further comment:

Mark Wakeham, Campaigns Director Environment Victoria 0439 700 501

Read the report here >

Read Mark Wakeham’s blog >