Westpac to withdraw support for thermal coalmining after 2030

Note that this is for thermal coal only.  Metallurgical coal exports are big too so the Greenies may not be appeased

Westpac has promised to stop supporting thermal coalmining, joining other major financial institutions in promising it will not back the fossil fuel industry through investments or loans beyond 2030.

It leaves ANZ as the only big Australian bank not to have pledged to get out of thermal coal, the dirtiest fuel used in mass electricity generation.

Environmental activists said Westpac’s commitment, which over the next decade includes not taking on new thermal coal customers and limiting support for mines or projects in existing coal basins, was “another nail in the coffin” of the thermal coal industry.

It came as Westpac decided to not pay an interim dividend to shareholders after it posted a first-half profit slide because of hefty impairment charges related mainly to the Covid-19 pandemic.

Australia’s second-largest lender reported a 70% slump in cash earnings to $993m for the six months ended 31 March, from $3.30bn a year earlier. Net profit was down 62% to $1.19bn.

A bank statement released on Monday said Westpac recognised climate change was one of the most significant issues that would affect long-term prosperity of the global economy “and our way of life”. It committed the bank to managing its business in alignment with the goals of the Paris climate agreement, including a transition to an economy that has “net zero” greenhouse gas emissions by 2050.

In a list of principles, the bank said climate change was a financial risk, that addressing it would create opportunities and called for the re-introduction of a carbon price.

It promised to lend another $3.5bn to climate solutions over the next three years and ensure its financing of electricity plants supported a path to zero emissions.

“Westpac’s preferred policy position is that a broad, market-based price on carbon is the most effective, affordable, flexible and equitable means of achieving emissions reductions at the least cost across the economy,” it said.

On thermal coal, it said it would support existing customers as it reduces its exposure to the fossil fuel to zero over the next decade. It would continue to offer finance for metallurgical coal, used in steel production, while supporting technology developments to reduce the steel industry’s dependence on it.

On oil and gas, it said it would assess their role in the transition to a low carbon economy while providing finance in line with its commitment to the Paris deal.

Climate activist group Market Forces said Westpac’s commitment on electricity lending should “squeeze out” new coal power plants and make it near impossible to finance new gas generation. It pointed to an Intergovernmental Panel on Climate Change report that found meeting the Paris goal of keeping global heating as close to 1.5C above pre-industrial levels as possible meant energy from gas must fall 25% below 2010 levels by 2030.

The group’s executive director, Julien Vincent, said the bank’s stance was a nail in the coffin of thermal coal and a warning to the federal government if it planned to boost fossil fuels on the way out of the Covid-19 pandemic.

“This plan shows it won’t be happening with Westpac’s cooperation,” Vincent said. “Last year, the Commonwealth Bank was the first to commit to be out of thermal coal by 2030 along with all three of our general insurers. Now, anyone trying to operate a coalmine or power station in Australia by the end of this decade will need to do it without Westpac as well.”

Market Forces said it hoped the new policy meant Westpac would reverse its recent lending trends, including $5.4bn in loans to coal, oil and gas projects since 2016, far more than the bank made available to renewable energy projects.

The activist group found Westpac increased its new investments in fossil fuel projects by 8% in 2018-19 compared with the previous year. The bank said its overall exposure to climate polluting industries, including longstanding investments, fell by 16%.

The Investor Group on Climate Change, representing institutional investors with funds under management worth about $2tn, said Westpac’s policy was a positive step that reinforced a global trend among international financiers to strike out or limit coal financing.

The group’s chief executive, Emma Herd, said in the past few months some of the world’s biggest funders of coal projects, including Japanese banks Sumitomo Mitsui and Mizuho, had ruled out directly funding new coal plants. Others, such as HSBC, had tightened existing policies.

May House, an economic analysts with the Australian Conservation Foundation, welcomed the announcement and called on financial institutions to ensure their financing and investment portfolios were focused on both rebuilding the economy and addressing climate change and biodiversity loss.

“For Australia’s big four banks, this does not end at setting an exit date for financing thermal coal, but should extend to ruling out funding any new or expanded oil and gas projects,” she said.

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‘Cashed-up activists’ should not be able to hold up developments, Australia's resources minister says

The federal minister for resources, water and northern Australia, Keith Pitt, says “cashed-up activists” should not be able to hold up developments that have been approved by a government agency “simply because they can afford to”.

In an interview with Guardian Australia, Pitt said Australia had “some of the strongest environmental protections in the world” and the government had “no intention to change how strongly we protect the environment”. But he said a review of Australia’s environmental laws needed to consider how assessment processes could be “streamlined” for companies developing major projects.

“For individual companies who are making investment decisions there needs to be consistency, particularly around the timeframes and how long particular approvals might take, regardless of whether that is local, state or federal government levels,” he said.

“It shouldn’t be up to cashed-up activists to be able to hold up particular projects for a decade, simply because they can afford to.”

Pitt’s comments follow the environment minister, Sussan Ley, saying last week the government was prepared to make changes to national environment laws before former consumer watchdog head Graeme Samuel completes an independent review of the Environment Protection and Biodiversity Conservation (EPBC) Act.

The statutory review of the act occurs every 10 years. A draft report is due in June and the final report in October.

Ley has not indicated what, if any, changes to laws are under consideration, but the government has emphasised a desire to reduce the amount of bureaucracy for companies applying for environmental approval for large projects.

Australia has the highest rate of mammalian extinction in the world and a poor track record in taking steps such as registering critical habitat and recovery planning to protect threatened species.

Pitt did not specify which sections of the EPBC Act he believed needed reform. “I’ll leave those comments to Sussan,” he said. “In general terms we have some of the highest environmental standards in the world and they’ll be maintained.”

But he said businesses had consistently raised concerns about multiple layers of bureaucracy at state and federal levels and duplication of laws related to environmental assessments.

Pitt said Ben Morton, the assistant minister to the prime minister and cabinet, was examining “red and green tape” and “having discussions around the potential for bilateral agreements between the commonwealth and states”.

“I’m a practical, commonsense sort of guy,” Pitt said. “If you have an approval for a specific element which is exactly the same between the two levels of government, one would assume that you should be able to get that approval from both levels with the one application.”

At present, there are bilateral assessment agreements that allow proponents to prepare a single set of documentation for decision-makers at a state and federal level for some parts of the environmental assessment process.

But a recent draft productivity commission report on regulation of the resources sector states that developers continue to call for bilateral approval agreements, which would see state and territory decision-makers responsible for decisions under the EPBC Act, rather than the federal environment minister.

Pitt did not identify specific reforms he thought were necessary in this area and said he was “waiting for the outcomes of the review”.

Cameron Holley, a professor of law at the University of New South Wales, said Australia’s environmental laws were quite strong on paper when it came to protecting matters of national environmental significance. But he added: “It comes down to implementation. The state-of-the-environment report is a good place to start and the trends are not good. It speaks to their effectiveness.”

The most recent state-of-the-environment report showed a downward trajectory for many species.

Peter Burnett, an honorary professor of law at the Australian National University, said it was difficult to compare the effectiveness of different systems of environmental law around the world. He said Australia’s laws were “strong on paper but they’re under-resourced and under-implemented so the outcome is they are not as strong on the ground”.

Burnett also said there was not enough detailed data and information collected on Australia’s environment.

“When you look at the general reports [such as the state-of-the-environment report], looking at the big picture, you can see we’re not heading in the right direction,” he said. “But often we don’t have the detailed information to say that a particular decision contributed to a certain loss.”

James Trezise, of the Australian Conservation Foundation, said Australia led the world on mammal extinctions and “all our environmental indicators are heading downwards”.

“Our environment laws have fundamentally failed and Australia needs much stronger environmental protections if we are going to avert the worst of a growing climate and extinction crisis.”

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The coronavirus can’t stop the windpower blowhards, let alone economic reality

For Australian energy, 2020 started precariously.  The bushfires showed the vulnerability of the nation to its subsidy-induced reliance on renewable energy.   

Average prices in January reached near-record levels.  In addition, the market manager was forced to intervene spending over four times as much as normal — $310 million — buying services and compensating suppliers in order to stabilise the system.  

In February, low demand, an influx of renewable energy, and high supplies of hydro brought about a halving of the previous month’s prices.  These conditions continued in March when they were reinforced by a forced cessation of demand and ample gas supplies caused by the COVID-19 crisis. 

And in April prices fell to $35 per MWh.  Such levels were last seen five years ago, before wind/solar subsidies caused closures of two major coal power stations, resulting in a two-and-a-half-fold increase in prices and, due to the higher share of intermittent electricity, a permanent lift in unreliability.   

Forward markets indicate that prices that were previously forecast at $75 per MWh are now at around $55 per MWh, a level that will be maintained through 2021.  This trend could continue in later years if, as is constantly threatened, one of the big three aluminium smelters were to close, thereby reducing national electricity demand by five per cent.  

Long term, the low prices cannot be maintained with the current wind/solar-rich generation, even if there is an-ongoing de-industrialisation. Wind and solar costs are difficult to estimate since the contracts are confidential and the headline price contains various contingencies.  CSIRO estimated the cost of wind at around $50 per MWh and Bloomberg New Energy Finance at $40-74.  Lazards put the cheapest wind at $52.  On some estimates, large scale solar is cheaper. China, which in the March quarter of 2020 announced approved more new coal capacity than in the whole of 2019, is clearly unimpressed with such estimates.   

One reason for this may be that intermittent renewables also need a firming contract which presently costs $40 per MWh but which Snowy Hydro says will fall to $25-30.  Add to this, wind (but not solar) earns a discount on the average spot price because of its lesser availability during high price events (when typically, there is little wind).  According to the Energy Council, wind on average received in 2018/19 24 per cent less per MWh than the average spot price in South Australia (in NSW it was only five per cent less).  

A further cost is that seen in January this year when the market manager had to buy, and charge to wind farms, frequency control services (FCAS) and require backoffs, with wind farms also choosing to back off to avoid high FCAS charges. 

Thus, if the spot price is $55 per MWh, a wind farm capable of a variable production cost of $50 per MWh would need $90 per MWh because of its earnings being discounted by, say 20 per cent, or $10 per MWh; a hedge cost at, say, $30 per MWh

In addition, it would have other costs caused by the lack of system strength and FCAS charges. 

Offsetting these penalties, wind and solar receive the renewable subsidy, which last year averaged $31.5 per MWh (about $457,000 per turbine). Forward prices have this declining to around $20 per MWh.  Long term it has to fall to zero which means a wind/solar dominated system would deliver electricity with support to offset wind/solars’ intrinsic unreliability at best at $80 per MWh.   

Wind and, to a lesser degree, large scale solar is now a mature technology and is likely to see cost reductions not dissimilar from those of nuclear of fossil plant.  

In Australia a system dominated by coal plant, supplemented by fast start hydro and gas, can provide a highly reliable electricity supply system at around $55 per MWh.  China and other developing countries would probably not be able to match this as they lack the low cost and conveniently located coal we have on the East coast.  Even so, they will have nuclear/fossil fuelled electricity at far less than the $80 we can hope for from our present policy settings. The energy intensive industries are therefore likely to migrate away from Australia and other industries will see costs higher than they need, an outcome of which is a lower exchange rate and lower living standards.    

The market manager, AEMO, has released a plan that indicates the network could accommodate up to 60 per cent “instantaneous penetration of wind and solar and could be adapted to accommodate 75 per cent.  AEMO does not specify what the costs of this would be.   

Meanwhile, renewable energy lobbyist Martijn Wilder, who the Commonwealth has appointed to head up hand-outs to renewables through the Australian Renewable Energy Agency, finds their appointee is calling for more monies to be directed into renewables as a result of coronavirus.  His views are supported by the head of the Business Council who opined, “Every dollar we invest in energy, should be a dollar towards a lower carbon economy”. 

Maybe we just want to be poorer than we need to be.

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Capitalism is not finished - and we'll need it to escape this abyss

Since federation, the economic governance of Australia can be conveniently divided into three contrasting periods. Phase one, which featured industry protection and centralised wage determination, lasted from 1901 to 1983. During these years, the state was dominant in almost every corner of life and the economy was characterised by periodic crises triggered by external shocks.

Although the Liberals were in power during much of the post-war era (1949-72, 1975-83), Australia was closer to socialism than capitalism. From Ben Chifley to Malcolm Fraser, every prime minister accepted the power of the state to manage the economy.

This model began to fray in the 1970s and collapsed in the mid-1980s when we experienced the currency and balance-of-payments crises. Australia, as then-treasurer Paul Keating warned, could become a “banana republic”.

Australia was only saved from this fate by Bob Hawke’s Labor government. Showing political courage, he created a new economic orthodoxy, which liberated market forces, privatised state entities and opened up our protected economy.

It was a Nixon-in-China moment: when a political leader defies expectations by doing something that would anger his supporters if taken by someone without his credentials. In this case, the former union leader upset Labor’s old socialist guard while winning support from conservatives, led by the likes of John Howard.

The result was two decades of productivity-enhancing reform and, from the early 1990s, almost 30 years of growth with low inflation, low unemployment and, according to the Productivity Commission, no great widening in inequality.

Tragically, this second phase of economic governance ended during the global financial crisis of 2008-09. “Neoliberalism” had come to an end, declared Kevin Rudd, and social democracy would save global capitalism.

Ever since, Labor and Coalition governments have rested on the windfall of our China boom and settled into the complacency of prosperity. The result: productivity slowdown, wage stagnation and record-high household debt as the growth of government spending continued.

Australians have become used to relatively benign economic growth stretching over the decades. Now, thanks to the coronavirus crisis, we have entered a new and dangerous environment. Even on the more optimistic forecasts, a lot of Australians are going to nurse losses in jobs, businesses and hopes and dreams.

What now? What should define phase four of our economic governance?

Alas, crises can produce worse policy, and nowhere is that as true as with the growing calls for massive state intervention in the post-COVID economy. The left welcomes the birth of a new permanent era of government activism while some on the right proclaim the end of free trade and globalisation.

What passes for the new zeitgeist grimly echoes Ronald Reagan’s quip about government: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it.”

However, although relief in a crisis is a proper role of government, there should be no ideological validation from the radical, albeit temporary, emergency measures designed to save lives. There is no crisis of capitalism, but there is a liquidity crisis that has been caused by the decision of governments to shut down most commerce to stop the spread of a virus.

Higher levels of government intervention will only lead to sclerosis, the raising of taxes, the suppression of enterprise and unsustainable debt. Higher levels of protection will just increase prices of imported goods and risk drawing us into a slump of the sort that what was experienced in the 1930s.

Australians don’t think in terms of big or small government: we are instead a practical people who just want the state to act as a fair umpire that promotes individual freedom without creating an unacceptable level of insecurity. We also know there is a long-run cost to dependency on the state, including an aversion to risk that boosts entrepreneurial spirit necessary for innovation and prosperity.

If Canberra addressed the fundamentals of taxation, spending, regulations, education and the workplace, it would put in place the sound bases from which a long-lasting recovery is possible, not merely a short-term bounce out of the abyss.

But can Scott Morrison do a Bob Hawke and implement a reform agenda that removes obstacles to growth? Can Josh Frydenberg do a Peter Costello and embark on budget repair? And, crucially, can the opposition give bipartisan support to a new reform agenda, just as the Coalition did in the reform heyday in the ’80s? The answers will determine how we get out of this crisis.

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 Posted by John J. Ray (M.A.; Ph.D.).    For a daily critique of Leftist activities,  see DISSECTING LEFTISM.  To keep up with attacks on free speech see Tongue Tied. Also, don't forget your daily roundup  of pro-environment but anti-Greenie  news and commentary at GREENIE WATCH .  Email me  here