Controversial Watermark coal mine approved for New South Wales: experts respond

On Wednesday, federal environment minister Greg Hunt approved the Watermark Coal Mine in New South Wales.

That approval, given under the Environment Protection and Biodiversity Conservation Act, is not the final step. Shenhua still needs a mining license from New South Wales, and three further approvals on water management and rehabilitation from the federal government.

In an economic analysis the mine, proposed by Chinese mining company Shenhua, was valued at A$1.3-1.6 billion. The mine is expected to produce up to 10 million tonnes of coal each year over the its 30-year lifetime.

Minister Hunt said the approval was granted with some of the strictest environmental conditions in Australia’s history. But federal agriculture minister Barnaby Joyce, current member for New England where the mine will be constructed, labelled the approval “ridiculous” for allowing a mine in agricultural land.

And former independent MP Tony Windsor, who held the seat of New England until 2013, has indicated the approval was a “tick in the positive box” for his potential return to politics.

Below, experts respond.

John Rolfe, Deputy Dean of Research, School of Business and Law at Central Queensland University

The potential development of the Shenhua coal mine for coal-fired power plants in China expose the differences between aspirational goals and what is happening in reality. China has underpinned the huge increase in demand for coal between 2004 and 2013, and is now the world’s largest producer, consumer and importer of coal.

Some commentators have predicted that China’s consumption of coal will soon peak, perhaps by 2015, because of cost pressures, the growth in renewables, and government restrictions.

While China’s growth in demand for coal is slowing, absolute growth in coal consumption will continue for another one and a half decades. The World Energy Outlook 2014, summarised by Ian Cronshaw, predicted that total global energy use will increase by almost 40% to 2040.

While the share of renewable energies grows, and the share of fossil fuels falls over that time period, the absolute share of fossil fuels is predicted to increase. China is central to this story, with predictions that it will account for almost a quarter of energy usage by 2020.

There are a number of reasons why China’s dependence on coal will slow, including a restructuring of the economy, increases in renewables, and efforts to reduce pollution. As well, the current replacement of many coal-fired power plants will improve efficiencies. Yet demand is expected by the World Energy Outlook to grow out to at least 2030, albeit at much lower rates that over the past decade.

This growth in demand is one reason why China is investing in production, such as the Shenhua coal mine. At a projected production of 10 million tonnes a year, the mine would meet about 0.7% of China’s current coal demand for electricity generation of more 1.3 billion tonnes of coal each year.

While meeting future demand is one reason why China may be investing in production, supply substitution is another key reason. While China is the world’s largest producer of coal, the production and transport costs are high at many mines.

This means that marginal producers in China (as in Australia) are probably losing money. Now coal prices are lower, there is more likelihood that marginal operations will be closed in favour of new mines that can produce more efficiently.

Would the development of the Shenhua coal mine lead to an increase in global greenhouse emissions? The answer depends on whether the coal contributes to a growth in coal consumption, or whether it is part of the substitution story. Both scenarios are plausible but uncertain.

The current slowdown in China’s economy must be trimming growth forecasts and future coal consumption; at the same time the low coal prices and increased focus on air pollution measures are probably increasing pressure for closing some domestic mines in favour of other alternatives.

The mine has proved controversial in New South Wales.Kate Ausburn/Flickr, CC BY

John Quiggin, Professor, School of Economics, University of Queensland

In the years since the project was proposed, the price of coal has fallen dramatically. The company’s economic analysis of the proposed mine assumes a coal price of A$140 a tonne.

This is based on the high price for metallurgical coal that prevailed when the project was proposed. The boom in such coal derived from a massive multi-year construction boom experienced in China. In the last two years of construction the boom, has slowed and there is now a substantial risk of a disorderly collapse.

Coal has fallen accordingly and the price is now far below that assumed by the company in its economic analysis. It is highly unlikely that the mine can be profitable at current coal prices let alone lower prices in the future.

The prospects of the mine are even worse in the light of China’s commitment to cap and then reduce its emissions of carbon dioxide before 2030. For a mine with a projected life of more than 30 years, this is a disaster. Most of the coal will be left in the ground one way or another.

Shenhua would be well advised to abandon this project.

Martine Maron, Associate Professor of Environmental Management, University of Queensland

The Shenhua mine will destroy 771 hectares of some of eastern Australia’s most threatened ecosystems. These endangered box and gum woodlands are home to rare and rapidly-declining species, such as the colourful swift parrot, regent honeyeater and koalas.

The Regent Honeyeater is one of the threatened species that lives where the mine is to be constructed.Doug Beckers/Flickr, CC BY-SA

One of the conditions of approval for the mine is to “offset” these impacts. That means the proponents must pay for some beneficial action somewhere else to counterbalance the significant impacts of the mine.

How could this work? There are two options.

First, we can recreate box-gum woodland and habitat that were not there before, to replace the amount being destroyed.

Except that we probably can’t do it very well. All we can do is replant some of its typical plant species. In many decades, what we replant might start to provide some ecological functions and habitat similar to the original ecosystem that was lost. There is a lot of uncertainty – and a long time delay.

Second, we could protect some already-existing box-gum woodland offsite. We could remove grazing, for example, or control weeds and feral animals. This is called “averted loss” offsetting. As my colleague and I have pointed out elsewhere, the use of this approach requires biodiversity to be in decline, and it leads to maintenance of that same rate of decline.

In other words, our newly-protected offset area only helps us counterbalance the loss of woodland if our offset site would otherwise have been lost or degraded – remembering that it is, of course, a threatened ecological community that needs protection anyway.

The Shenhua offset proposal does a bit of both: it plans to restore woodland and protect some existing habitat. The bottom line is that clearing 771 hectares of woodland means there will be even less of this threatened ecosystem than there was before. Offsets can help, but the only sure-fire way to recover threatened ecosystems is to avoid losing them the first place.

Samantha Hepburn, Professor, Faculty of Business and Law at Deakin University

The Shenhua open cut coal mine is planned for the ridge county around Mount Watermark and will not affect agriculture rich black-plain soils. The approval includes strong water usage conditions – Shenhua is only entitled to use 0.09% of available groundwater; it must complete water, biodiversity and rehabilitation management plans prior to mining and any impact on groundwater allocated for agricultural purposes; it must complete annual compliance updates and; should an impact on agricultural interests be proven, would be required to provide compensation.

The approval of the coal mine in a strong agricultural zone is illustrative of the increasing overlap between the mining and agricultural sectors in New South Wales. The approval needs to be contextualised.

BHP has plans for a mine of 500 million tonnes less than 10 kilometres from the proposed Shenhua location and Santos has applied for a coal seam gas licence to explore for gas across the Liverpool floodplain. The approval also needs to be evaluated in light of global concerns regarding the environmental, health and climate change impacts associated with both the extraction and use of coal.

These concerns combined with the sensitive location of the proposed mine raise strong questions regarding the overall benefit of the Shenhua mine to the region and to Australia. The fundamental issue is whether this mine can really provide such economic boost that it will offset the potentially devastating impacts on fragile ecological areas, including the local koala population and groundwater aquifers.

While Shenhua insists that the proposed mine will not be located on the Liverpool plains and therefore will not impact the irrigation groundwater in this region, it is clear that the close proximity of the mine to this groundwater system increases the possibility.

The jobs, economic growth and community funding generated by Shenhua, including for example, an upgrade of the maternity ward of the Gunnedah hospital, donations to aged care and renovations to the Gunnedah town hall are important but cannot act as a substitute for rigorous protection of a groundwater system that supports such a strong and established agricultural industry.

John Quiggin is a member of the Climate Change Authority.

John Rolfe has received funding from the Australian Coal Association Research Program, and research grants from the coal industry, and the Queensland federal governments for coal research.

Martine Maron received funds from the Australian Research Council, the Australian Government’s National Environmental Science Program, and several Australian state governments. She is a Director of Birdlife Australia.

Samantha Hepburn consults to parties involved in the resources sector through EMI Partners which she co-founded in 2015. EMI Partners consults to governments, land owners, commercial organisations and NGOs.