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Australia’s Coal Production Awaits Carbon Impact News

July 9, 2011

The Australian Government is expected to release the final structure of the carbon emissions package tomorrow. The coal mining sector is expecting to be a big loser from the measures.

The impact of a carbon price on electricity, liquid fuel, and fugitive methane emissions will add to production costs, unless they are omitted, or affected industries receive compensation.

Citi research estimates an additional cost of up to $2.50 per ton of coal, which could lead to a valuation loss of between 2-4% of coal companies.

In an effort to raise awareness of the potential negative effects, last month the Auatralian Coal Association released a study which models employment, production, and revenue impacts.  It concludes that there will likely be a cumulative production loss to 2020 of 26o Mt from operating mines, and a further cumulative production loss of over 200 Mt from production cuts associated with planned mines.  The study forecasts significant employment and revenue foregone, and some mine closures.

On the flip side, all parties concede that the industry will grow enormously irrespective of the imposition of a carbon price.

The Prime Minister, Julia Gillard, has publicly committed to not letting the industry down.  A compensation package over the next few years of over AUD$1bn has been mooted.

The industry will find out tomorrow.  However, in that the emissions target and associated permit issuance will not be decided until well after the imposition of the initial flat carbon price, companies will not enjoy investment certainty for some years to come – if ever, and if there ever was such a thing.

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