SYDNEY -- Earlier this month, as Sydney's financial district hummed during the early-morning rush hour, Greenpeace activists unfurled a banner outside of ANZ Bank that read, "ANZ Polluting Your World."
It sought to saddle the bank with a bad reputation for financing large coal-fired power projects, and put the nearby Reserve Bank of Australia on notice that public investment in projects that expand coal's role in the economy is just as unacceptable.
This isn't the first time environmental activists have upbraided ANZ in recent months. Each time, the bank refused to stop financing power projects that burn coal but insisted it is gradually shifting its portfolio toward renewable energy.
"It's an evolution, not a revolution, and we cannot turn the lights off overnight," said ANZ spokesman Stephen Ries.
A few days earlier, a caravan of Australian government officials traveled into the Latrobe Valley, a couple hours east of Melbourne, to see the 1,600-megawatt Hazelwood power plant. There, researchers are testing technology that captures carbon dioxide emissions tied to climate change. In time, if the technology to clean up power generation is successful, Australia hopes to export the knowledge to coal-burning stations in China, India and Asia's other big economies.
Hazelwood is nearly 50 years old. It burns lignite coal, a brown coal that is high in carbon compared to other fuels used in steam-electric turbines. Owned by the United Kingdom's International Power, Hazelwood's fleet of towering smokestacks is among Australia's largest sources of greenhouse gas emissions. It has at times been listed as the highest carbon-emitting power station in the world.
A short drive from the Hazelwood plant is another large facility, the Loy Yang power station. Each power plant relies on coal scooped from a gaping canyon across the road. Coal moves across the arid landscape on conveyor belts to feed boilers that keep the lights on in Melbourne and its suburbs.
Officials visiting the power plants that day manage an expanding Australian bureaucracy built around the government's desire to scale up the use of technology that strips carbon from coal before it's released into the atmosphere. To some of them, the sight of the massive centralized power stations, and their adjoining open-cut coal mines, reinforced the magnitude of the challenge. An estimated 500-year supply of cheap brown coal to fuel those power plants sat under their feet.
"We could easily survive another 30 years in this condition, no problem," Neil Bates, manager of station operations at Loy Yang, said about the plant's maintenance during a briefing for the group. "The real question is: How long will we last in the current political environment?"
Coal exports become a burning economic issue
The climate change issue burns hot in Australia. And both the Greenpeace rally in Sydney and the clean coal projects at Hazelwood and Loy Yang underscore the nation's deepening paradox: Developing a plan to transition to cleaner fuels and energy technologies is a major political priority in Australia. But the resource-rich continent has a lot of coal. It also happens to be the largest exporter of coal in the Asia-Pacific region and is positioning itself to be the major supplier of seaborne coal to China, the world's biggest producer of greenhouse gas emissions.
To the Australian government, extending the life of the country's coal export boom means continuing a strong economy. But it also wants to join other nations in cutting greenhouse gas emissions. It has a public-private partnership to develop carbon capture and storage (CCS) technology. One of the hopes is that the world coal market can continue to boom if CCS costs can be brought low enough to be widely deployable at Asia's giant power stations.
"The government's job is to bring certainty to this debate," Martin Ferguson, Australia's minister of resources and energy, told ClimateWire. "The industry has said this decision has to be resolved. As they say, we are mainly a coal export nation."
With a population of 21 million, Australia generates a small fraction of total global emissions contributing to climate change. But among industrialized nations, its power sector is the largest emitter on a per capita basis. About 80 percent of the nation's electricity comes from burning domestic coal.
Australia also ships coal to Asia's major economies: Japan, South Korea, China and India. Exporting coal has become a dominant force in its economy. Conventional wisdom here is that natural resource exports -- coal, iron ore, metals and petroleum -- shielded Australia from the worst of the global financial crisis. To add to that, the nation is building the region's largest terminals for shipping liquefied natural gas.
Voracious consumption of steel-making coal and fuel to power cities in China and India is expected to support a lucrative Asia-Pacific coal trade for decades.
Preparations for long-term export deals
Billions of dollars of planned mine, rail and port expansions are on the table in Australia, and buyers from Asia's economic powerhouses are negotiating long-term supply deals. In the northeastern state of Queensland, huge thermal coal basins once thought to be too remote and too far from coastal ports will be shipping the rock to China and India by 2014.
"It puts Australia in a very difficult position, on the one hand participating constructively in global climate talks, but at the same time, letting the international coal corporations have free rein to exploit our coal reserves," said Georgina Woods, director of Climate Action Network Australia.
Public opinion polls suggest Australians accept the science of global warming. A record-breaking, decadelong drought, a fragile ecosystem and coastal environment -- where 80 percent of the population lives -- and parliamentary wrangling tying political fortunes to coal exploitation have kept proposed carbon taxes and emissions standards high on the agenda in the nation's capital, Canberra.
Prime Minister Julia Gillard vows that 2011 is the year Australia will put a price on carbon. And on Friday, in a speech before an investor group in Sydney, Climate Change Minister Greg Combet talked about decoupling carbon pollution and economic growth.
"Over time, a carbon price will transform the most carbon-intensive sectors of the economy," Combet said. "In Australia's case, it will fundamentally transform the way we generate electricity."
Combet last week returned from U.N.-sponsored climate negotiations in Cancun, Mexico, where he brokered deals on mitigation and adaptation financing for developing countries. In Mexico, Australia stuck to its pledge to cut between 5 and 25 percent of its emissions below 2000 levels by 2020, depending on emissions cuts made by other countries.
Australia also has a 20-percent renewable energy target by 2020. Along the sun-drenched coast, solar power has big potential. The government provides subsidies to install solar panels; but as in Europe, the program has raised red flags about the impact on overall power prices and public finances.
For Gillard and Combet, public support for addressing climate change and enthusiasm about Australia's role in global talks don't translate easily into policy wins.
Tough issues for a fragile coalition
Bruising political battles over the issue this year scrambled party positions and resulted in the ousting of top leaders in Parliament. It also handed Gillard a minority Labor Party government and a fragile governing coalition that includes independents and Australian Greens, who are pushing for aggressive emissions cuts and policy timelines.
"Even those progressive businesses took it for granted that something would get through, clean energy and insurance companies and financial institutions that see physical and policy risks," said John Connor, chief executive of the Climate Institute, a nonpartisan think tank in Sydney. "The government will be very mindful of business groups. So we're trying to act as a broker between business and environmental groups."
Gillard, Australia's first woman prime minister, was swept into power in late June after Labor leaders ousted her predecessor Kevin Rudd for, among other things, failing to get his emissions trading program through Parliament. Gillard has soft-pedaled the climate issue since then, as she tries to reset the debate.
Next year, policy committees are expected to recommend a fresh plan for pricing carbon emissions for major polluters, which could come in the form of a tax, and rolling in a market-based program for cutting emissions.
But the climate fights in the past 18 months also swept in an opposition leader, Tony Abbott, who has taken a sharper tone against adopting any climate policy that would increase electricity prices. Power prices have been steadily rising, becoming a political issue, as steep costs for upgrading the nation's old and inefficient power systems are driving up monthly bills.
Nine members of the Australian Greens will take their seats in July, holding the balance of power in a 76-member Senate. To pass anything, say political analysts in Australia, Labor leaders must accommodate Greens and unions on one end and, on the other, industrial and resource sectors that want protection from cost run-ups and global economic competitors.
Huge mining company wants a price on carbon
In September, the chief executive of Australia's largest mining company, BHP Billiton, surprised the universe of business and environmental interests that waged battle in 2010.
In a speech before the Australian-British Chamber of Commerce, CEO Marius Kloppers said BHP "acknowledges that the mainstream science is correct, and that we need to stabilize -- and eventually reduce -- the carbon concentration in the atmosphere."
While BHP prefers an international climate framework, he said, the more likely path will eventually harmonize local policies aimed at cutting emissions into a unified global action. "We believe that such a global initiative will eventually come," he told his audience.
Kloppers urged Australia to impose a high enough cost on carbon pollution to drive investment in energy alternatives and technology. He urged the power sector to start weaning itself from coal. "Failure to do so will place us at a competitive disadvantage in a future where carbon is priced globally," he said.
BHP's decision to publicly push for a price on carbon has been viewed in industry and environmental circles as a signal that diversified miners operating in the global market are shifting to a more nuanced view on climate change. BHP, Anglo-Australian Rio Tinto, South Africa's Xstrata and St. Louis, Mo.-based Peabody Energy profit primarily from their coal and metals exports, not the domestic electricity market.
From that perspective, the coal giants win if Australia keeps an economic edge by using more gas and renewable energy and adopting cleaner energy technologies. They also need public support to keep expanding their mines, rails and ports to ship more coal to China and India.
Coal exporters need public support to ship more
"Our license to operate in Australia depends on public support," said Ralph Hillman, president of the Australian Coal Association, which speaks for coal companies on climate change. "We want there to be a long-term future for coal. We don't want people suddenly saying, 'Coal is an energy source of the past.'"
In principle, Hillman said, the group supports a carbon price that ushers in new technology and phases out Australia's oldest coal-fired generators. But it opposed the plan under former Prime Minister Rudd's government in late 2009 and early this year. "The coal industry was unfairly excluded," he said, from protections for high-polluting export industries. Rudd's emissions trading plan covered about 70 percent of the economy.
Its "Cut Emissions -- Not Jobs" campaign warned that the "tax on coal mines" would cause mines to shut down in the Hunter Valley outside of Sydney and devastate local communities.
Rio Tinto, Xstrata and Peabody haven't yet followed BHP's lead, and Hillman says he knows of no such plans. If they do, the willingness of individual coal companies to lend strong support for cutting carbon emissions in Australia would stand in sharp contrast to the coal lobby's pitched battle against a similar policy in the United States.
"We might get some business leadership for a change," said Tony Maher, president of the Construction, Forestry, Mining and Energy Union's mining and energy division.
Maher and environmental groups say they expect some repeat of "scare tactics" by industrial advocates, but that an air of pragmatism is developing ahead of next year's debate.
The economic picture for coal companies has improved, which they say has created more breathing room to negotiate. The global financial crisis cut commodity prices in half in 2009. "That meant producers didn't want to pay one cent for a carbon scheme," Maher said.
"What I say to workers is there's no future for the old way of doing things, old conventional coal plants," he said. "People get it."
Environmental groups that met in Sydney a few weeks ago are also gearing up. After being caught flat-footed and unable to combat opposition campaigns earlier this year, groups interested in everything from saving the Great Barrier Reef to wildlife preservation, water and farming are trying to pull together.
"We were unanimous in wanting to talk about investment and setting a vision," said Kellie Caught, the World Wildlife Fund-Australia's acting head of climate change. "$1.50 a day would save the Great Barrier Reef. It starts to defuse the 'great big tax' argument."
Following China's lead; not waiting for the U.S.
Yet it's business interests that the Gillard government is reaching out to. Right around when environmentalists went searching for their voice, a business roundtable convened by Gillard's treasury chief met for the first time. It includes the resource kings, BHP, Rio Tinto and Royal Dutch Shell, alongside other energy, farm, industry and small business groups.
Nathan Fabian, chief executive of the Investor Group on Climate Change Australia and also a member of the 20-person roundtable, said most in the room agreed Australia is heading toward a price on carbon. But the debate will revolve around the impact on Australians' cost of living.
"It has to be China, India, the United States and Europe that make the deep cuts in emissions," said Hillman, head of the coal group. "The best thing we can do is provide good policy and develop good technology that works, but there is no point slitting our economic wrists thinking we're going to save the reef."
Still, the cost of living argument is a "simplistic and simple message to sell," Fabian said. "Those wanting progress will have to argue it's going to cost less in the long term if we do it early."
John Quiggin, an economist at the University of Queensland in Brisbane, said Australia has seen tougher economic adjustments. "The cost is 1 to 2 percent of GDP. It's a big number, but on the other hand, compare it to the kind of rhetoric that alarmists put up," he said.
China's investment in clean energy companies and research, and the idea that China appears more interested in tackling climate change than the United States, is elbowing into the debate.
"We understand that the Chinese are going to catch up quickly. We're not going to wait for the U.S.," Fabian said.
The United States is Australia's strategic national security ally and cultural cousin, but China has rapidly become its chief economic partner. If in its next five-year plan China turns sharply toward an energy and technology policy that emphasizes lower emissions, it could pressure trading partners to show they're also committed.
"As China commits itself to this, it isn't very long before they look over their shoulders and say, 'What about the free riders?'" Ron Oxburgh, a geologist and climate adviser to Singapore and investment groups in the United Kingdom and Germany, said in Melbourne.
Europe, Japan and smaller Asian economies will go along with China in its effort to cut carbon intensity. "I would be surprised if, at that stage, China didn't start flexing its muscles and saying, 'We're going to exercise economic and political sanctions, directly or indirectly, against those that won't join the party,'" Oxburgh said.
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