What Saudis can teach Australia about coal

Via Jacob Brown, Future Energy Leader – Institution of Chemical Engineers (IChemE) from The World Economic Forum:

On 18 May this year, Australia had the most surprising election upset in decades. The coal-supporting Liberal-National coalition wrenched victory from the jaws of defeat in what had been termed the ‘unloseable election‘ for the opposition. Against all odds, Australia chose coal and a prime minister who not only endorses a suite of anti-renewable policies, but, in what may be a first for world leaders, even brought a lump of coal into parliament house and used it to taunt his opponents.

The Australian public may have chosen coal, but they cannot save it. The industry is being killed by cheap gas and renewable energy sources. The evidence today is hard to deny; coal is increasingly too expensive, dirty and inflexible to be economic in today’s world. Even in the US, despite Trump’s promises to save the industry, coal plant closures have hit record highs. Coal is dying.

This is not the first time a country’s resource economy has been threatened by a changing global agenda. In these situations, countries must plan for the future or risk being overtaken by events. Here, Australia might have something to learn from Saudi Arabia – which, while known for its efforts to impede climate action on the international stage, has been much more ambitious with its own state-driven clean energy plans.

Saudi Arabia has long recognised that the future of the Saudi state depends on the future of oil.

Since World War Two, throughout extensive political turmoil, the fate of this nation has relied heavily on the goodwill of the US and other foreign powers. This goodwill is, and always has been, secured with constant, stable and plentiful shipments of crude oil.

Unfortunately for the Saudis though, this era is coming to an end.

Over 60% of the world’s oil is used for transport and this is increasingly threatened by vehicle electrification. While many argue that we should be winding down oil production immediately, even the world’s biggest oil companies (who are usually optimistic on this matter) see oil demand flatlining by 2040. Regardless of whose predictions you listen to, oil faces constrained growth and substantial economic risks originating from the falling cost of batteries, electric vehicles, and the solar and wind technologies used to power them.

The political threat to the industry should also not be understated. Combustion car phase-outs are fast approaching in many parts of the world. The UK and France expect to have transitioned to electric vehicles by 2040, Norway by 2025; even India has stated that it wants all new car sales by 2030 to be electric. These mandates have strong drivers. Our species’ increasing hostility to fossil fuels, as evidenced by the school climate strikes, the protests around the world organized by the Extinction Rebellion movement, and fossil fuel divestment movements the world over, is becoming abundantly clear. Humanity is changing its mind, and many governments are listening.

Saudi Arabia recognises this threat to its economy. An old quote from the Saudi oil minister, Ahmed Zaki Yamani, paints the situation clearly: “The stone age did not end because the world ran out of stones, and the oil age will not end because we run out of oil.” Saudi Arabia is keenly aware that time is running out, and the country has been pushing strongly for clean energy development within its borders. Saudi regularly makes headlines with pledges to build the world’s largest solar plant (a project that was shelved last year) or that they will spend $80 billion on nuclear reactors in the next 12 years. It is yet to be seen whether these promises will yield concrete action, but they are evidence of the Saudi state’s ambition.

Australia, on the other hand, has decided to pursue coal with vigour, despite the fact that coal will be eliminated from the power mix well before oil. Investors know this, and are leaving the coal market in droves.

It is true that coal is a pillar of the Australian economy; as the country’s second-largest export, coal brings in 60 billion Australian dollars (US$41 billion) per year, exceeded only by iron ore at 61 billion AUD. However, if the loss of coal is not planned for, it could severely impact the Australian economy. The country needs robust future planning for a managed decline of the industry, but we have so far little movement at the federal level.

In fact, Australia stands to gain significant economic advantage from the new energy economy. It has vast reserves of solar and wind power, and a large percentage of the world’s battery minerals.

But time is running out for Australia. Two options lay before it; take a proactive, future-oriented approach to the opportunities of a changing energy system, or bury its head in the sand before the incoming storm.