Singleton and Muswellbrook Coal Reliance Risk

Filed under Hunter Valley, Industry, Manufacturing, News ~ by Press on  6 Feb 2019

The Hunter Valley, especially Singleton and Muswellbrook localities, must diversify to prepare for weakening coal demand.

A report by researchers at the University of Western Sydney (UWS) fears mass unemployment for valley communities when declines in thermal coal demand occur, as the world implements both the Paris Agreement and UN Sustainable Development goals.

Image ~ Coal Reclaimer by J.Buckingham, Flickr

It argues we should build on the region’s existing strengths in agriculture and manufacturing industries and on the strong skills base already present of machinery operators, drivers, technicians, and trade workers.

Under a do-nothing approach, the region is lacking diversity and stability and is highly susceptible to mass unemployment if the global coal sector declines.

If action is taken now to prepare for the changes that are coming and to diversify the Hunter economy, then it is possible to buffer the region, (even) increase employment and wages.

The government needs to establish land security for the agricultural sector and ensure that planned investment in renewable energy and environmental remediation goes ahead.

It also argues strongly for a Port Waratah container facility linked by rail to the Hunter Valley.

The report – Weathering the storm: The case for transformation in the Hunter Valley (PDF download) – written by researchers* Neil Perry and Gillian Hewitson at the University of Western Sydney, was commissioned by Lock the Gate.

It models the effect on the Hunter’s economy of a 55% contraction of the coal mining industry by 2040, drawing from models by the International Energy Agency that indicate this is the scale of contraction that will occur for thermal coal consumption globally as the world takes action to meet the Paris Agreement goal of limiting global warming below two degrees.

It concludes that under a do-nothing approach, the region is lacking in diversity and stability and is highly susceptible to mass unemployment if the global coal sector declines.

As a decline in coal demand is consistent with Australian and NSW Government commitments to the Paris climate agreement and Sustainable Development Goals, economic theory suggests that it is efficient and prudent to invest in an alternative future.

Fortunately, planned renewable energy and environmental remediation investment the region has great potential in alleviating the impact of a declining coal sector. In addition, the region’s natural resources and agricultural potential can aid in the region’s diversification. However, Federal, State and Local governments need to act.

Analysis suggests that a strong Hunter region is possible if the economy transitions, but this requires government action.

The government needs to establish land security for the agricultural sector and ensure that planned investment in renewable energy and environmental remediation goes ahead. In particular, to ensure that the local economy benefits from the planned investment to the greatest extent, government investment is needed in the industries that supply renewable energy and environmental remediation.

In addition, to aid workers, retraining investment is needed so that those workers losing mining jobs can participate in the new growth industries.

It proposes:

  1. An independent transition process ensuring the public interest;
  2. Ongoing, not one-off, subsidies for renewable and growth industries;
  3. A container terminal in Newcastle linked by rail to the Hunter Valley;
  4. State government collaborates with energy and mining companies for investment in renewables and mine rehabilitation;
  5. Review of exploration and mining titles with cancellation of titles deterring investment in rural industry;
  6. Coal mining companies levied to pay for retraining and skill development of the workforce.

Lock the Gate spokesperson Georgina Woods said politicians and other community leaders could no longer take a business as usual approach to the coal mining industry in the Hunter.

Mining represents 31% of all jobs in Muswellbrook and 41% of jobs in Singleton. This makes the two shires vulnerable to changes in global coal demand and markets, particularly in Asia, where close to 90% of the coal mined in the Hunter is burned.

When coal prices and demand fluctuated from highs of $166 in 2008 to lows of $83 in 2014, employment in the coal mining industry fell by 25% over three years – this showed how vulnerable these communities are.”

The report uses the International Energy Agency’s World Energy Outlook forecasts for world coal demand and production under a Sustainable Development Scenario (SDS).

The SDS assumes that Paris Agreement climate change goals are met along with ensuring universal access to modern energy services. NSW and Federal Governments have both committed to meeting Paris Agreement goals.

The report outlines a scenario where if we continue with business as usual, employment in the Hunter coal industry would fall by 5,199 jobs by 2040 and wages and salaries by $705M, as the world acts on climate change,” Ms Woods said.

The UWS analysis also identifies a positive scenario for the Hunter of early action and diversification:  595 more jobs could be created than will be lost from coal mining and local wages and salaries could increase by $315 million to 2040.

In Depth

The Hunter Valley in New South Wales is the heart of Australia’s thermal coal industry and the local economy is deeply rooted in coal mining and exports. Thus, the economic future of the region is intimately bound up with global efforts to prevent dangerous climate change.

The coal mining industry in the Hunter Valley is concentrated in the local government areas of Singleton and Muswellbrook and contributes 58% of the economic output of these two shires.

Mining represents 31% of all jobs in Muswellbrook and 41% of jobs in Singleton. This makes the two shires vulnerable to changes in coal demand and markets, particularly in Asia, where close to 90% of the coal mined in the Hunter Valley is burned. For example, when coal demand and prices fluctuated from highs of $166 in 2008 to lows of $83 in 2014, employment in the coal mining industry fell by 25% in the three years to 2014.

The report asked the two questions:

  1. What would be the economic impact on two local government areas in the Hunter if the coal industry contracts in line with predictions for meeting global climate change and development goals?
  2. What opportunities are there for the Hunter to diversify and prepare for that challenge by beefing up other employment and economic opportunities that make use of the region’s existing skills, knowledge and natural resources?

Researchers used a range of approaches to identify transition options, including where the Hunter already has comparative advantage, and where the region imports products that could be made locally. The positive transition scenario is based on the modelling of the following:

  1. The potential for agriculture (particularly grape growing, horse farming and poultry farming) to provide new employment and income using land currently occupied by coal mining.
  2. The replacement of Bayswater and Liddell power stations with renewable energy and storage of the same capacity.
  3. Future expectations for tourism, manufacturing, transport and warehousing based on extrapolating growth rates and trends.
  4. The continuous development of a renewable energy industry which exports renewable energy products and skills to other regions.
  5. Environmental remediation, especially mine rehabilitation, which provides opportunities to transfer mining workforce skills in heavy and civil engineering.
Recommendations

The opportunities highlighted in the report –

…require support and systematic, targeted and coordinated oversight if they are to balance the decline of coal mining and provide jobs and income for people in Singleton and Muswellbrook.”

With the right support, the transition scenario ultimately improves the employment and wages and salaries of local residents even with the sharp decline in coal production predicted. Therefore, we recommend the following measures to support the economic transformation of the region:

  1. An independent transition process to ensure that resources are invested in the public interest to aid transition in both the electricity and mining sectors.
  2. Support and subsidies for renewable energy and growth industries to ensure income and supply-chain benefits are retained with the Hunter region.
  3. Support for the development of an environmentally-responsible container terminal in Newcastle, linked by rail to new enterprises in Singleton and Muswellbrook.
  4. Collaboration between the NSW Government and AGL Macquarie and mining companies to ensure the required investment in renewable energy and mine rehabilitation takes place.
  5. Review of all exploration and mining titles and the cancelling of titles which are deterring investment in sustainable rural industries whilst establishing buffers on equine and viticulture industries.
  6. Coal mining companies to be levied to pay for retraining and skill development for the workforce.
Five Strategies for Government Intervention

1. The government needs to work closely with AGL-Macquarie and coal companies to ensure the planned investment in renewable energy and expenditure on remediation occurs. The extent to which remediation expenditure is realised and can be increased determines the positive outcome for transition in the region. Similarly, the planned expenditure on renewable energy is the major driver of growth in the region and the government should support and subsidise renewable energy to aid AGL-Macquarie in its endeavours.

2. The impact of these large expenditures on renewable energy and remediation will be greater where the income and supply-chain impacts are retained within the region. This suggests the need for large-scale subsidisation of growth industries to support the renewable energy and remediation plans. For example, a smooth transition will require government subsidies for the construction industry and those manufacturing industries that supply renewable energy and further subsidies may be needed to support their continual growth under transition scenario 2 in Table 17.

Modelling two transition scenarios, the report finds the first approach “still results in a negative impact on output, jobs and wages highlighting the important role for government in helping the economy transition. Primarily, the impact is still negative because the reduction in coal production is permanent and continuous while the investments in renewable energy and remediation are one off.”
The second transition scenario in Table 17 below “models a local renewable energy industry that continuously supplies products and services needed for national and international markets rather than one that simply supplies the local investment and shuts down.”

3. The agricultural industry in particular is affected by the uncertainty over land use which the government can resolve. The major impediment to growth in the agricultural sector is the uncertainty created by mining exploration and extension licenses. For example, the Hunter Thoroughbred Breeders Association and the Hunter Valley Wine and Tourism Association have lobbied for greater protection (Department of Premier and Cabinet, 2018, p. 49). They have requested prohibiting new open cut, underground and CSG (Coal Seam Gas) mining on and within 10kms of the equine and viticulture critical industry clusters and a prohibitive development clause of the SEPP. In addition, the industry requests legislation to permanently protect the equine and viticulture critical industry clusters with 10km buffers from new mining proposals. Existing Government policy does not provide this protection and proposals to mine lands identified as part of the critical industry clusters is negatively affecting other potential growth industries. The government should review all exploration and mining titles to examine whether they are deterring investment in sustainable rural industries, cancel or not renew those found to be negatively affecting diversification efforts and grant the request from the equine and viticulture industries to establish buffer zones.

4. Although the planned transition works favourably for the occupations that are expected to lose employment as mining declines, there will be a large cohort of workers needing retraining for the new growth sectors in the region. The government could levy mining companies to pay for retraining or subsidise education opportunities which would further boost employment in the education sector in the region. Structural unemployment occurs when economies adjust abruptly such as occurred in Australia with the reduction in tariffs in the 1980s. Planned transition and labour retraining can reduce or eliminate the structural unemployment that would arise with the reduction in global coal production under a do nothing approach.

5. Port of Newcastle needs government support for the creation of a larger container port and aid in the vision of the Hunter region as a major supplier of goods to Sydney (Deloitte Access Economics 2018). The Muswellbrook and Singleton areas could benefit from the warehousing, transport and logistics industry growth that follows. Thus, the government’s actions in supporting the vision for the Port of Newcastle would aid transition.

*Neil Perry is Senior Research Lecturer in Corporate Social Responsibility and Sustainability, School of Business, and Gillian Hewitson is Senior Research Assistant, School of Business, both of Western Sydney.

Image below ~ Jeremy Buckingham, Flickr: Hunter Valley open-cut mining and agriculture

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