My latest report: The Economic (non)viability of the Adani Galilee Basin Project
and, news that Adani is blending more domestic coal in the fuel for its Indian power plants to cut costs. That makes high-ash Carmichael coal even less appealing.
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That’s the conclusion of a recent depressing report from the Wentworth Group. There is, of course, an “unless”, but having spent decades of my professional life on this issue, I can’t say I’m hopeful. Certainly, there’ll be no progress under the current government, as this issue is now part of the culture wars. Whether Labor will do any better, I don’t know. Here’s the comment I provided to the Australian Science Media Centre.
The depressing outcomes reported by the Wentworth Group are the inevitable result of the policy decision to abandon buybacks, that is, the voluntary purchase of water entitlements from irrigators who are willing to sell those entitlements. Buybacks are by far the most cost-effective method of securing additional water for the environment as well as providing a direct benefit to farmers, who can use the proceeds to reinvest in dryland agriculture or to assist a transition out of agriculture. The abandonment of buybacks, combine with a failure to address the needs of irrigation-focused communities in the Basin represents the worst of all policy worlds.
Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.
I’ll be talking to the Fabian Society in Melbourne on Wednesday night, looking at the failure of neoliberalism and options for a new “New Deal”.
A few weeks ago, Queensland Premier Palaszczuk and Adani’s Australian head, Jeyakumar Janakaraj opened the company’s new Regional Headquarters in Townsville. It was announced that “Townsville will benefit from about 500 jobs in Adani’s regional headquarters and about half of those should happen within weeks”. “Within weeks” can mean anything, I guess but the obvious interpretation is that things ought to be happening about now.
If so, it’s hard to detect from afar.
Update A Townsville reader informs me that Adani’s sign is still adorning its new HQ, though it’s unclear whether there’s anything more than a sign. Also, Adani has reannounced a jobs portal that has been up on its website since January.
Read more…
As a part of my work on the Adani mine-rail-port project, I’ve been providing economic input to a project with Kristen Lyons and Morgan Brigg at UQ aimed at supporting the Wangan and Jagalingou Traditional Owners Family Council (W&J) in their attempts to assert control over their traditional land. So far we’ve produced an initial report, a summary of which has appeared in The Conversation.
My general aim in this work is to examine more sustainable economic models than coal mining for both indigenous and non-indigenous people in the North Queensland region. More on this soon, I hope.
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I’ve finally been got around writing something about US philosopher Jason Brennan’s arguments for “epistocracy”, that is, restricting voting to people who are well-informed about the issues. For a long time, I assumed that such an idea would be ignored, and fade into oblivion, as most academic ideas do. But it’s popped up here in Australia. And, with democracy under challenge all around the world, it’s obviously not enough to say that it’s self-evidently a Good Thing that everyone should have the right to vote, and exercise it. So, I’ll try to offer some more specific objections.
Not quite, but the OECD has finally recognised that globalisation isn’t currently working to deliver improved living standards for everyone, a fact implicit in the title of its latest report Making Globalisation Work: Better Lives for All, I have a piece in Inside Story, headlined: The OECD joins the backlash against unfettered globalisation looking at a recent report they’ve issued. The subheading is
But can an organisation that has promoted a globalised world economy take on the massively powerful finance sector?
(Hint: Probably not).
I’ve been flat out for the last couple of weeks, and haven’t had time to post. But I’ve finally found enough time to read the Finkel Review into the Future Security of the National Electricity Market (NEM). There are four inter-related points that come out of the report
1. The NEM has failed in its own terms, that is, with respect to the objective of providing reliable and affordable electricity. The Review recommends a variety of tweaks to the market rules, but the core measure is a shift to central planning by a new Energy Security Board, which effectively overrides the multiple existing market bodies. Not surprisingly, given the political environment the Review ignored my submission calling for renationalization of the Grid, but the logic is the same.
2. We need a carbon price, in one form or another, if we are to reduce emissions in line with our commitments. Given that all economy-wide options have been ruled out, we may as well start with an electricity specific policy. Within electricity, the existing Renewable Energy Target is a crude kind of price mechanism, with only two prices, one for renewables and the other for non-renewables. But, if we tweak that a bit, we can replace the largely irrelevant notion of “renewability” with emissions-intensity, and we have something like a carbon price. I pointed this out a couple of years ago. The Clean Energy Target Finkel Review doesn’t quite get there, but it goes most of the way.
3. The only way to get lower wholesale electricity prices is to expand renewables and let the owners of coal-fired power station take a corresponding hit to their profits.
4. Policy uncertainty has been at least as big a problem as bad policy. This was most obviously true of the Abbott government’s attacks on the RET, which stalled investment in renewables, while doing nothing for coal. Abbott is correctly blamed for many of our current problems. The implication is that a bipartisan compromise is better than holding out for the right policy, only to see it reversed after the next change of government. Whether that judgement stands up remains to be seen. If Turnbull does indeed face down Abbott, Abetz and the rest, and can reach an agreement with Labor, the arguments of the Review will be vindicated. And, with the denialists sidelined, it will become obvious that we need and can easily achieve more ambitious targets.
A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.
Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.
A couple of days ago, Gautam Adani made the long awaited announcement that the Adani board had decided to proceed with the Carmichael mine-rail project in the Galilee Basin. As usual there was an asterisk. Construction work won’t start until Adani can get financial backing. This was previously supposed to in June 2017 (that is, within weeks) but has now been deferred until 2018. Still, Adani has opened a head office in Townsville, promises to hire up to 250 staff and is also saying it will begin pre-construction works like land clearing in the September quarter.
But on the same day, unnoticed by almost the entire Australian press, with the exception of Peter Hannam at the SMH, the board of Adani Power, the putative buyer of Carmichael Coal, made a much more consequential decision. They are spinning off the 4GW Ultra Mega Power Plant* at Mundra, along with a huge load of debt, into a subsidiary, provisionally called Adani Power (Mundra). The plan it seems is to sell majority ownership, hopefully to the government of Gujarat, and thereby leave the slimmed down Adani Power with a manageable debt load, while it shifts further away from coal and into renewables.
But without Mundra, Adani Power won’t have nearly enough coal-fired plant to take up the output of even the first stage of Carmichael. And this “mine to plug” model was crucial to the viability of the project. Even if the modest recovery in thermal coal prices over the past year were sustained, Carmichael couldn’t cover its costs by selling on the world market.
So what is Adani up to? I’ve thought about a bunch of hypotheses and now I have one that I think makes sense. Adani doesn’t want to write off the $2 billion or so it’s already put into acquiring the mine site, but it also doesn’t want to throw good money after bad. Suppose that, Adani gets $1 billion in loans from the Turnbull-Canavan Northern Australia slush fund to build the rail line, which is owned by a separate Adani company in the Cayman Islands. They could use that money to get started on the rail line, while discovering yet more reasons not to start spending their own money on the mine.
That would buy them perhaps a couple of years during which something might turn up. The price of coal might go up a lot. abd the Hancock-GVK Alpha project might somehow be revived. If so, the rail line could be viable even without Carmichael.
And, if nothing did turn up, Adani would have bought a couple of years breathing space before writing off the losses that have already been incurred, without spending a significant amount of its own money. Adani (Caymans) would slide gracefully into bankruptcy and the Australian public would be left with a half-built rail line to nowhere and a billion dollar hole in our collective pockets.
Of all the explanations I’ve tried out, this is the one that makes most sense to me right now. Comments appreciated.
* I love this grandiose name, redolent of the great days of Soviet-inspired central planning. The UMPP program was started with great fanfare a decade or so ago, but has now collapsed almost completely.
I have a piece in the Guardian headlined ‘Asset recycling may look new and exciting. But it’s the last gasp of a failed model‘ which pretty much sums up the piece. Also, in the Monday Message Board, commenter stockingrate points (via Yves Smith) to a much more comprehensive analysis by Josh Bivens and Hunter Blair of the Economic Policy Institute. To get a feel for the way this is playing in the US debate so far, this article in the Washington Post, where I’m quoted very briefly, is a good starting point.
Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.
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