Costing of The Greens’ Economic Policies: Mining

Overview

The Greens’ stated economic policies require the phasing out of coal mining in the near future. Contrary to arguments that this policy could be reasonably costless we find that mining in general and coal mining in particular is highly integrated into the Australian economy. We estimate the direct consequence of that policy would be to reduce GDP by between $29 billion and $36 billion per year. Then there are the indirect costs to consider. For each job lost in the coal mining industry 6.5 jobs will be lost in the economy has a whole. The employment consequences of the coal industry closing would be almost 200,000 jobs across the economy. The loss of corporate income tax and increase in welfare payments would constitute a negative $6 billion impact on the federal budget. For every $1 of income lost in the coal mining industry, $3.92 of income will be lost in the economy as a whole. At present any replacement industries are unspecified – so it is not clear what the net cost to the economy would be.

These magnitudes of loss are not trivial. The modest decline in coal exports during the first quarter of 2011 were blamed for the negative economic growth. On the other hand, we show that coal exports increased dramatically during the recent Financial Crisis. Without that increase in coal exports, Australia would almost certainly have experienced a recession with, at least, three consecutive quarters of negative economic growth.

Most troubling we find that Australian comparative advantage in coal exports has eroded in the past ten years. This we attribute to poor policy developments within Australia. It is clear that policy makers have little regard for mining and this has encouraged poor policy making. Coal mining performs well despite the poor policy environment. It is clear, however, that poor policy will over time undermine Australia’s economic opportunities. At present, however, those policies have not been a deliberate attempt to undermine the industry.

The Greens, and to a lesser extent the government, propose policies that are deliberately intended to disadvantage coal mining. We argue that given the competitive nature of the world coal market that the costs of those policies will be incurred in Australia and will give rise to few, if any, global environmental benefits.

The argument that renewable energy could easily replace coal powered energy is fanciful. Australia has little installed capacity in renewable energy compared to coal powered energy. In addition renewable energy is very expensive and technologically uncertain.

In terms of foregone output, lost jobs and reduced income the costs of implementing The Greens’ economic policy relating to coal mining (and mining in general) would be very high.

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