Australia Emissions Scheme Only Limited Impact On Coal

Australia's planned carbon trading plan would have only a very limited impact on the country's coal industry, Citigroup said in a report Wednesday.

The Carbon Pollution Reduction Scheme, or CPRS--which still has to be passed by Australia's parliament with a vote expected mid-November--will add only US$2 a metric ton to average production costs, or about 4%, Citi said.

That's in stark contrast to industry projections of about 16 unspecified mines, and 'gassy' operations in particular, closing because of the inclusion of fugitive emissions such as methane into the CPRS. There are currently 115 thermal and coking coal mines in Australia.

Under the proposed scheme, the coal industry will have to buy carbon credits but won't receive transitional assistance.

While not all companies provide data on fugitive emissions, the average Australian coal mine has a carbon emission of 0.1 tons of carbon dioxide per ton of coal, Citi said.

At a carbon cost of A$20/ton, the CPRS would only add about A$2/ton to the cost of production for the Australian coal industry, or a 4% increase on average cash cost of about A$50/ton.

"We estimate the NPV (net present value) of the Australian export coal industry of about A$71 billion. CPRS could result in a A$3 billion hit to that value," said Citi.

Industry group the Minerals Council of Australia contends the country's key export industries face the toughest emissions trading scheme in the world. Coal is Australia's largest export commodity.

"We do not see CPRS as a major negative investment theme for the coal sector at current share prices; a US$2/ton increase in long-term thermal coal price would compensate the CPRS hit," Citi said.

There may still be changes to the scheme, such as the exclusion of coal fugitive emissions, or treating the sector as a trade-exposed industry and therefore allowing it to receive transitional assistance.

Citi predicted hardly any change for diversified miners BHP Billiton Ltd. (BHP) and Rio Tinto Plc (RTP). However, older and costlier assets among those owned by Centennial Coal Co. (CEY.AU) and Whitehaven Coal Ltd. (WHC.AU) may be at risk. None of MacArthur Coal Ltd.'s (MCC.AU) mines are at risk of closure, Citi said.

Australia accounts for only around 1.5% of global emissions but is the biggest per capita polluter in the developed world due to its heavy reliance on fossil fuels, chiefly coal, for around 90% of its electricity generation.

The aim by 2020 is to reduce Australia's greenhouse gas emissions by at least 5% from their level in the year 2000.

-By Elisabeth Behrmann, Dow Jones Newswires;

61-2-8272-4689 elisabeth.behrmann@dowjones.com

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