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Does the huge China-Australia coal deal square with the Copenhagen Accord?

Environmental activists are attacking a $60 billion deal that will keep Chinese power stations supplied with Australian coal for at least the next two decades.

Under the agreement announced last week, the Australian coal and iron ore mining company Resourcehouse will build a new mining complex to give China Power International Development 30 million tonnes of coal annually for the next two decades. Resourcehouse Chairman Clive Palmer called it the "biggest-ever export contract" for Australia, which is the world's leading exporter of coal.

But in supplying China, the world's biggest emitter of greenhouse gases, green groups are accusing Australia of ignoring the role it plays in maintaining dirty energy economies around the world.

"It is hypocritical for Australia to on the one hand blame China for climate change and on the other hand try so hard to sell more coal to China," said Ailun Yang of Greenpeace China. The deal, she said, "will only lock China further up in its unhealthy dependency on coal."

Bradley Smith, spokesman for Friends of the Earth in Queensland, Australia, said it "drives another nail into the coffin of climate change. If the project goes ahead, then emissions from the exported coal would equal 20 percent of Australia's total domestic emissions."

The tensions come on the heels of last year's climate change summit in Copenhagen. There, President Obama and the leaders of other industrialized nations like Australia successfully pushed China and other fast-growing developing nations to scale back the growth of carbon emissions. While the pledges are voluntary, U.S. leaders have described them as an important step in persuading all the major economies to take responsibility for their role in causing global warming.

The start of a continuing expansion of coal trade?

Activists say the deal raises fresh questions about what countries are most liable for global warming pollution. Economists, meanwhile, point out that the Australia-China agreement signals an expansion of the coal trade that will likely increase in coming years without an international carbon regime to regulate it.

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"Production is going to flow, where there is no restriction for using coal," said Jeremy Carl, a research fellow at the Program on Energy and Sustainable Development at Stanford University. With industrialized nations like Australia under pressure to go green, Carl said they likely "will export reserves that they may politically not be able to use at home."

Attributing carbon emissions to a particular country is fairly straightforward. By all internationally accepted measures, countries "own" the greenhouse gases produced within their borders. Politically, though, the calculations are a lot trickier.

In the run-up to Copenhagen, Chinese leaders argued that since 30 percent of the country's emissions are created by manufacturing and exporting goods to the West, industrialized nations should take responsibility for that portion of China's carbon footprint. It's an argument that didn't fly with climate negotiators from industrialized nations, but resonated widely in the environmental community.

Australia, meanwhile, emits about 544 million short tons (493.5 million tonnes) of CO2 annually. But activists say the country's greenhouse gas output doubles when overseas fossil fuel exports are factored in.

"For us, it's always been a matter of great concern that Australia, while it needs to develop its renewable energy economy domestically, it also needs to address this dependence on exporting coal," said Georgina Woods, international coordinator with Climate Action Network Australia. She and others have called for Australia to develop a plan to phase out dependence on coal exports.

Aussies talk about cutting emissions, but not coal exports

"It's always been something of an anomaly for us that while they are talking about an emissions trading system domestically, they are rapidly expanding their coal exporting," Woods said. But, she added, "It's something that's difficult for us to tackle because it's been so integral to Australia's economic identity for so long."

Government officials in Australia, meanwhile, say that's the wrong way to look at a complicated issue like global energy needs in a world where coal is still one of the most abundant and cheapest sources of power. And with coal bringing Australia more than $50 billion annually, there's little mainstream discussion there of reducing or phasing out the country's biggest export.

"Consistent with International Energy Agency forecasts, the Australian government recognises coal will continue to be a very important part of the global energy mix in the decades ahead," Michael Bradley, spokesman for Australian Minister for Resources and Energy Martin Ferguson, said in an e-mail.

"Rather than trying to reduce the use of fossil fuels, the Australian government is focused on developing technologies to reduce emissions from these fuels and the increase of energy efficiency throughout the economy," he said.

In a written statement sent by his office, Australian Assistant Minister for Climate Change Greg Combet noted that international emissions accounting rules regarding burning coal for energy production are an individual country's responsibility, no matter which country supplies the coal.

But, he said, Australia is playing a leading role in seeking technological solutions to global warming pollution by encouraging the development of carbon capture and storage (CCS) technology and the recent establishment in Australia of the Global Carbon Capture and Storage Institute.

Asia's coal demands expand rapidly

"The most effective way we can encourage the reduction of emissions in the energy production sector is through a comprehensive international agreement on climate change, which is why the Australian government is playing a constructive role in the international negotiations," he said.

It's a view that is strongly echoed by the Australian Coal Association, which is contributing $1 billion over the coming decade to CCS development efforts. In a press release the trade group put out before the Copenhagen summit, ACA Executive Director Ralph Hillman said the group supports a carbon pricing mechanism that goes hand in hand with research and development funding.

"Preserving the competitiveness of Australia's industry must be a central aim of this approach along with reducing emissions," he said.

Australia provides about 30 percent of the world's coal, exporting 233 tonnes annually, according to the Australia Coal Association. It's the nation's largest commodity export, and the Sino-Australian deal is expected to create tens of thousands of jobs in Queensland and generate multimillion-dollar royalty payments for the state, according to Australian press reports.

Meanwhile, China's hunger for coal remains insatiable, and throughout Asia, demand for coal is high and getting stronger. Japan, Korea, China and India are the largest importers of coal. At the same time, they and other countries, like the Philippines and Malaysia, are rapidly expanding the number of thermal power plants and importing fuel at ever-growing rates.

Seaborne trade in coal has increased by 7 percent every year over the past two decades, according to the World Coal Institute, with Australia leading the world, followed by Indonesia.

Australia has four coal mega-projects under development in the state of Queensland, sometimes called the Wild West of the country. Resourcehouse's First China Coal is only one of the four, and it aims to extract steam coal from the Galilee Basin.

4 mega-projects in Queensland vie for the market

The region is so far inland that transporting the fuel would require a 307-mile rail link, additional port developments and an investment of $4.7 billion, according to a release by Waratah Coal.

Over the next three to five years, the companies hope to bring their coal deposits into production. Together, the four major developments could yield up to 130 million tonnes of steam coal every year starting in 2015 if plans laid by the companies go ahead, according to Bart Lucarelli, an independent consultant with experience in the coal supply and Asian power industries.

But there is so much coal in Queensland that the competition to become the primary supplier to the Asian market is immense among the four companies.

"Each of these developers is likely to engage in a war of attrition, using press releases, such as the ones recently released by [Resourcehouse Chairman] Clive Palmer, to trumpet the virtues and inevitability of its project as a means of creating investor doubts in the remaining projects," said Lucarelli.

Conflicting reports flew last week after Palmer announced the deal with China Power International Development. The Chinese firm first denied any such dealings, and then Palmer acknowledged he had gotten the name of the company wrong. It was, in fact, China Power International Holdings, which said that it had not yet signed a deal, but had only instituted a framework.

Considering the huge capital investments necessary to develop infrastructure in Queensland, the willingness of an anchor buyer like China to commit to huge orders is helpful, according to Lucarelli.

"Except for the Chinese, where there is a lot of state involvement and ability to make big moves, it'll be difficult to tie up 20 or 30 million tons of coal," he said.

Since the Chinese government decontrolled the coal market, prices within the country have soared. This has made it cheaper for power producers in southern China to import.

Meanwhile, countries will continue to grapple with the question of who bears responsibility for rising emissions, said David Pumphrey, deputy director of the energy and national security program at the Center for Strategic and International Studies. The problem, he said, is that "everybody" is in some sense responsible, adding, "We still have tension between drivers of economic activity and economic growth, and how we deal with climate change."

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