Gassy mines (and reports)

When we talk about methane emissions, we tend to think about farting (or burping, more accurately) cows. But another strong contributor to methane emissions (yes, odourless and colourless like CO2) are fugitive emissions from extraction of fossil fuels, particularly coal mines. Every tonne of methane released is the equivalent of 21 tonnes of CO2 released, hence the term CO2 equivalent, or CO2e.

The Australian Coal Association (ACA) has come out with a report showing how none of their competitors put a price on “fugitive” emissions from coal mining and a report this week showing the impact of carbon pricing on their sector. They went on to call for an exemption from the carbon pricing scheme for fugitive emissions until competitors also applied such an impost to their coal industry.

Now it’s hard to find fault with the analysis of the report commissioned by the ACA and done by the CIE. It is correct that the EU ETS doesn’t include methane. For reasons best known to the Europeans, probably related to protecting local agriculture and coal mining jobs, they have chosen not to have a broad-coverage scheme as advocated here in Australia. Broad coverage means all industries and all greenhouse gases (not just carbon dioxide but also methane, nitrous oxide, sulphur hexafluoride and a range of refrigerant gases).

As the PC analysis showed last week, the narrower the policy focus of a scheme, the higher the effective abatement cost. If you leave fugitive methane from coal mines out of a scheme, then you insulate them from looking for abatement solutions, or the economic signal of favouring less gassy mines.

Although I concur with the CIE analysis, I take issues with two of ACA’s conclusions, the first being that imposing a carbon price ahead of competitors will shut down the industry locally and the second being that a charge on carbon will hit the industry hard because there are no abatement solutions.

On the first, there are a number of factors that determine whether a company invests locally versus offshore, or chooses to relocate offshore. These go to the relative merit of Australia as a country to invest in relative to other countries. Factors that determine this relative merit include the availability of skilled labour, the level of infrastructure, political stability, cost of inputs such as energy and water and the legal and regulatory framework. Carbon pricing is but one of these many factors, and it’s difficult to accept that the sole decision point on locality for future investment can be whether there’s a carbon price in place or not.

The second point is that most of the industry is not that “gassy”. Most coal mining is less than 0.1 tCO2e per tonne of coal. If a $20/t carbon price is applied, that’s less than $2/t per tonne of coal, in a market trading $200-300/tonne.

The gassy mines are a small number (20-30) of mines, typically in NSW & QLD, representing less than 10% of black coal production, but yet representing 60% of the fugitive methane emissions from the coal mining sector. This is the reason the previous government pushed back on coal industry calls for EITE treatment under the CPRS. On average, the industry did not reach the emission intensity thresholds (of tCO2e per revenue or tCO2e per value add) to qualify. However, under the CPRS, Combet put forward a $500m assistance package designed specifically to address the issue of the gassiest mines, which are the mines most vulnerable. The gassiest mines are up to 0.7t/CO2e/t coal, for which the carbon price will clearly have a more significant impact on earnings.

The ACIL Tasman analysis assumes that there are no abatement solutions, and ACA stressed this point as well. However, it’s incorrect to claim that there are no abatement solutions. The simplest abatement solution is to oxidise the methane and turn it into CO2. By combusting a tonne of methane, you save 21t CO2e and produce 2.75tCO2e in the combustion, so save 18.25tCO2e per tonne of methane combusted. The tricky thing is that the methane is usually present in such low concentrations in the ventilation air methane (VAM) stream that it won’t combust. But there are technologies available that can address this problem.

For example, BHP Illawarra has trialled and deployed a technology to oxidise the methane, called the VOCSIDISER, from a company called MEGTEC. In addition, the CSIRO have been working on an alternative abatement technology called VAMCAT. Now admittedly these technologies have not seen broad commercial deployment in Australia to date, but this is probably as a result of the lack of a carbon price. There would be a strong demand and pull through of these technologies if a carbon price was to be implemented.

Abating fugitive methane from coal mines may be one of the lowest cost forms of abatement available to industry, let alone the country, yet it won’t be deployed at large scale without a carbon price. The carbon price (to be accurate, the avoidance of the need to purchase a permit) is the sole revenue stream to justify committing the capital expenditure on this technology

This should serve as an illustration of how a carbon price works to incentivise abatement, and how exempting an industry removes a potentially low cost supply of abatement from the economy leading to then higher costs for the rest of the economy.

Comments

  1. Only in Australia would we worry about the methane emissions from coal mines, while completely ignoring the emissions from the coal once exported and burnt overseas, in a country that has no intention of ever imposing a carbon price.

    In a way I can respect the denialists position. At least its consistent, and not hypocritical. I mean, check out this story in the Oz yesterday…

    Martin Ferguson says China demand will protect coal industry from the carbon tax

    I mean, that’s got a logical hole in it my 9yo could drive a truck through. Think about what Marn is saying here: “Oh don’t worry about the carbon tax, because we’re gonna export so much coal to China the effect will be minimal”.

    The hypocrisy is breathtaking.

    • You can’t simply stop emissions in their tracks, especially in EMs. If mititgation isn’t combined with development it’ll collapse completely. It’s not hypocritical, it’s practical. The test will come when China is faced with reducing its absolute levels of emissions when rich enough. In the mean time, developed eocnomies that can afford it should reduce their emissions and set up the path for EMs to follow.

      It is hypocritical to deny EMs that chance to develop when we aleady have using emissions.

      • Where did I say we should stop emissions (or coal exports) in their tracks?

        What’s hypocritical is pricing carbon locally, and not pricing carbon that’s exported. It all ends up in the same atmosphere.

        Now if the coal was being exported to a country that had a carbon price in place, then fine, no carbon price is required on the exported coal. However, any country that prices carbon is likely to demand less and less of our coal of our coal as time goes by, so its a Catch 22 for Australia.

        We as Australians are simply exploiting a loophole by exporting coal to countries that don’t, and likely never will, price carbon. And we’re getting rich doing it.

        The test will come when China is faced with reducing its absolute levels of emissions when rich enough.

        And when will that be? 2030? 2050? On current growth trends China will have twice the emissions of the US today, CO2 will be at 400ppm plus, and we’ll all be screwed.

        I completely accept your point that its hypocritical to ask developing countries to slash emissions while the developed world does nothing. That’s one reason why even a token carbon price in Australia is important, even if we represent just 2% of global emissions.

        You say be practical. I’m saying if you accept the science the only practical policy for humanity is absolute emissions reductions now. That means slowing growth of emissions in EMs, and large reductions in developed nations.

        This is a giant clash between the practicalities of economics and the practicalities of the biosphere. Both sides are screaming “be practical!”. What will happen is some bastardised compromise that is skewed heavily in favour of economics, and we’ll carry on with a (slightly modified) BAU until there’s a crisis.

        Convince me otherwise.

      • You are absolutely correct, it is hypocritical to pretend to care about local emissions reduction when you are really just exporting your emissions to other countries. It does nothing for emissions reduction, and hence the justification for the ‘carbon’ tax is absurd.

        This may even lead to increases in emissions (for example, if we buy Chinese solar panels, as we have been doing, to replace coal-fired power, and export that coal to China instead, we are creating further emissions through our demand for solar as well as the coal burning in ‘dirtier’ Chinese power plants).

        There is no rational reason to expect a developing nation to curtail growth in order to reduce its emissions regardless of what we do.

      • Carbon E. Coyote

        Chinese coal fired power plants aren’t necessarily “dirtier” than ours. They are closing their old inefficient and small power plants and replacing them with modern plants (eg ultra super critical). So their fleet is becoming less emission intensive. Meanwhile, ours stays the same, and includes some of the most greenhouse intensive in the world (eg Hazelwood).

      • CEC, if I’m not very much mistaken, even the most efficient coal-fired power station is very carbon intensive compared to virtually every alternative, even oil-fired.

        With all the new capacity coming online in China its completely swamping any efficiency gains. You might argue that China is improving its emissions-intensity (and I would agree) but the atmosphere doesn’t care about GDP-per-tonne-of-CO2, it only cares about absolute numbers.

      • Taking this further, lets say Australia — the world’s largest coal exporter — imposes an effective carbon tax that actually drives the transition from coal to gas or renewables for domestic electricity production. (Extraordinarily unlikely IMO, but lets pretend its happened).

        The effect of this would be less coal burnt domestically, and more coal available for export. Effectively the same as new supply coming on the world market. Surely this would put downward pressure on coal prices, and make coal a more attractive fuel for developing countries that don’t price carbon emissions.

        Net effect: We pay more for electricity at home, but the same amount if CO2 goes in the air globally, perhaps more, because coal is now cheaper and the incentive to reduce energy usage is weaker.

        I do apologise for following these scenarios to their inevitable conclusions. It often results in unpalatable results. Perhaps I should stop thinking?

      • What do you want? One world government ot fix everything with the wave of a wand?

        Do you think Australians would support a carbon tax if we halved our coal exports and standards of living?

        On one point I think you are right. We should be pouring huge sums into getting carbon capture and storage right. Not doing that is hypocritical.

      • What do you want? One world government ot fix everything with the wave of a wand?

        Isn’t that what all latte sippers want? 🙂

        What do you want? I’m guessing you’d like to see a binding global treaty tomorrow that commits developed nations to absolute cuts, and developing nations to stabilising emissions.

        Yes? If so, what does that do to coal demand over the long term (absent widespread adoption of some kind of CCS technology)?

        We should be pouring huge sums into getting carbon capture and storage right.

        Unfortunately, almost everything I’ve read suggests CCS is a pipe-dream. But hey, lets put a price on carbon and get the investment going globally to see if it can be made to work.

        Do the calculations on the amount of CO2 emitted per day from the world’s coal-fired power stations? I did once, several years ago and came up with 16 cubic kilometres per day. Where is the world gonna shove every day that and pray it stays there?

        I don’t make this sh*t up … this is the bind we’re in. You don’t want to think too deeply about the implications for Australia and its coal-based economy.

        As I’ve said, my problem is I think too much. I’d be much happier thinking free rooftop solar (and daisies) for everyone would do the trick, but it won’t.

  2. Also, China has been very active in deploying methane abatement at coal mines, mostly funded by CDM projects which are pulled through by the EU ETS.

    • No doubt, but is any of what China is doing even slowing the growth of their carbon emissions? Last I heard, China’s CO2 emissions were accelerating.

      • Rob JM,

        There may be some glaring holes in the global policy response, but I’m not about to change my views on the science. If you’d like to forward me a paper published in a reputable scientific journal I will read it, but I won’t be reading anything published on a denialist site such as the SPPI.

        A quick Google destroys their credibility. Carter, Monckton, Kininmonth, Idso … all the usual suspects are there. Need I say more.

      • Considering the global policy response is authored by the same people responsible for the consensus science, why are you so confident in their ability?

        Just click on the link, its authored by the highly respected William M Gray, a leading expert in hurricanes and tropical climate.
        You know you will feel better if you stop thinking the world will explode!

      • Funny. I didn’t realise global policy was set by climate scientists. I think they’d be surprised to hear that!