This article originally appeared in the Sydney Morning Herald. Written by Honorary Professor John Hewson, a member of the ECI's Energy Economics and Policy research cluster and former Liberal opposition leader.
Adani was always going to be a significant issue in the forthcoming Queensland state election. It is a divisive issue and one where the major players have sought to play excessive, short-term, politics in recent years.
With an urgent global challenge to transition to a low carbon society, Paris Agreement and well beyond, any sensible carbon budget to achieve net zero emissions by mid-century would suggest that 70-plus per cent of known coal reserves should never be mined. Nor burned for electricity generation. At just this level, it is impossible to justify a new coal mine, let alone one that aspires to be among the world's largest.
Of course, some simply reject the climate challenge, let alone its severity and urgency, while others suggest it can be "delayed" to "better economic times", as if we could wait to (say) 2049, to make the necessary "adjustments" in one big bang.
Clearly, the latter view completely ignores the significant shifts required in government, business, social and individual behaviour, and the time it would require to restructure the industrial, power and transport base of society away from dependence on fossil fuels.
Nevertheless, these arguments are easily run in a political contest in an attempt to make a short-term, political point. Or to "scare", or to somehow create the impression that economic "trade-offs", such as "jobs and growth" now, and climate later, are possible. But they ignore scientific and economic evidence and realities.
Yet some even attempt to provide a "humanitarian" cloak for their base prejudice, by claiming that a new mine, such as Adani plans for the Galilee Basin, will be important/fundamental to solving the challenge of "energy poverty" in India; ensuring cheap and reliable electricity to hundreds of millions in India that don't have it. When you get over the "tug on your heartstrings", you might note the recent statements of the Indian government to permanently reduce thermal coal imports, as they become increasingly uneconomic.
I know it's risky in this world of "fake news" and "post-truth politics" but, dare I suggest we look at the reality of what is unfolding regarding Adani?
I suggest the whole Adani "house of cards" is predicated on just one thing, namely, that the federal government is prepared to commit about $1 billion from the Northern Australia Infrastructure Facility (NAIF) – effectively low return, high-risk "quasi-equity" – to the project, ostensibly to fund the rail link from the mine to Abbot Point.
First, the Adani family, as distinct from the public company, is particularly exposed on its key asset, Abbot Point. If the mine doesn't go ahead, Abbot Point will be forced to operate well short of "optimum capacity", threatening losses to the family. Hence, a lower-tier investment bank, Jeffries, is apparently attempting to organise a near-junk bond issue towards the refinancing of the heavily leveraged Abbot Point. A NAIF loan will be fundamentally important to investor support for this port.
Second, with some 20-30 globally significant banks, including our Big Four, declaring their unwillingness to finance the Adani project, the company has been scrounging around for financial support. The latest rumour is that support may come from a Chinese company (CMEC, in conjunction with Downer EDI) as both EPC and bringing export credit finance, perhaps also backed by a government-owned Indian bank. Again the NAIF support would be fundamental to such a financial deal. Another rumour has the coal committed to be on-sold from India to Pakistan at near $US130 per tonne, about $50 more than what would be a "market price".
Against this background, the recent decision of Premier Annastasia Palaszczuk to refuse to sign the required support for a NAIF loan threatens to be a real hurdle. But her motives are not clear – ostensibly to deal with an accusation of a conflict of interest, as her partner has worked on the NAIF application. But perhaps it's more to do with her desire to shore up city votes against the Greens. She is still committed to giving royalty relief to Adani – perhaps also wanting to still be seen in some quarters as a supporter of the project.
The political support for the Adani project, especially from the Nationals, is also linked to a desire for the federal government to finance and build a new HELE coal-fired power plant in North Queensland. It would have to be government, as it is most unlikely it would be financed by the private sector, especially with the availability of cheaper solar and wind projects.
Evidence and commonsense suggests that Adani's Carmichael proposal should already be recognised as a "stranded asset". There is absolutely no justification for financial support from either the federal or state governments. To do otherwise is simply "intergenerational theft". Any short-term political arguments are entirely misplaced, the employment benefits exaggerated and the international reputational damage to Australia long lasting.