Queensland Resources Media Club luncheon address
3 September 2019
Check against delivery
It is a great honour to have been asked to speak at the first Resources media club event. And at this first event I thought I would concentrate on making the moral case for the development of Australia's resources.
Last week I was in India which thankfully had much better traffic than Brisbane thanks to the absence of anyone supergluing themselves to a road - at least on my journeys. India remains, of course, a developing country. The average income of an Indian is 15 per cent that of an Australian, but Indian incomes are growing fast. It is the fastest growing major economy of the world. And it is one of the youngest countries in the world too; one million Indians turn 18 every month.
I travelled to India with Colin Clark a staff member of mine. His grandfather, also named Colin Clark, was perhaps Australia's best economist. Among other things he invented modern GDP accounting and the economics building at the University of Queensland is named after him.
Colin wrote a book in 1942 titled the Economics of 1960. In it he predicted the rapid industrialisation of China and India and that, as a consequence, in 1960 Australia would be in the midst of a massive terms of trade boom. In the mid-1980s, Colin admitted his mistake noting that the industrialisation had not occurred as he had predicted. China had succumbed to political upheaval through the Great Leap Forward and the Cultural Revolution. India had slid into a Nehru inspired quasi Marxist economy oppressed with bureaucracy and red tape.
It is a shame that Colin's grandfather did not see to live his prediction come true. For Australia better late than never. The industrialisation of China has led to an enormous boom in Australia's terms of trade and India promises to follow that course.
The economic growth of Asian countries has been perhaps the most remarkable event in economic history. In just the last 30 years, extreme poverty has declined by 75 percent. Today, less than 10 per cent of people live in extreme poverty. Two hundred years ago it was more than 90 per cent. That has all been thanks to industrialisation and industrialisation still has a way to go.
If it is to keep going in countries like India, then Colin Clark will probably continue to be right. Australia will continue to benefit from higher prices for our resources than otherwise and our resources will help millions more emerge from poverty.
There are those that want to deny the rest of the world access to our resources. Those campaigning on the streets of Brisbane are some of those people. These post-election protests against coal mining are not just illegal they are immoral. If the goals of the protestors are ever achieved - that is the end of coal mining - the result would be millions of more people without a home, without access to electricity and without as much hope as they otherwise could have. All denied by rich, western people who take all of these things for granted.
Let's work through the numbers in a factual manner. I am going to focus on coal this morning given that is the main target of the protesters campaign. However, similar cases could be made for our gas, iron ore and other resources.
Our resources go to help build so many things too but today I am going to focus on electricity, houses, cars and wind turbines. Again I could choose bridges, boats, shipping containers or mobile phones. All of these require Australian coal, iron ore and other products too.
Coal generates 75 per cent of India's electricity. The average Indian uses only just over 1,000 kWh per year. Australians use, on average, about 10 times more. By 2040 the International Energy Agency predicts that Indians will increase their use to just under 3,000 kWh per person, still only a third of an average Australian.
By 2040, the IEA predicts that coal will generate just under half of India's electricity. However, because India's overall power needs will need to use an extra 700 million tonnes of coal every year compared to what it does today. Australia exports just over 400 million tonnes (in energy equivalent terms) of thermal coal a year.
But let's just say that we stopped the export of Australian coal. What would that mean for say India in 2040. Denying India that 400 million tonnes would deny over 260 million Indian people access to electricity in 2040.
Every million tonnes of coal will provide electricity to around 650,000 Indians on the projected demand of 240. So stopping the Carmichael mine would prevent 6.5 million people having access to electricity more than the population of Queensland.
Over 150 million people in India lack access to electricity. Why should they be denied that human right but others who take electricity for granted. One of the protestors who was arrested the other day complained that he was forced to watch the (admittedly) terrible movie Waterworld during his night in the watch house. I suppose in a world without electricity one benefit would be that we would be unable to replay terrible movies.
Some might say that the coal fired electricity can be replaced with renewables. Unfortunately if we banned coal we would not be able to build wind turbines either. About 140 tonnes of steel is in every wind turbine. The IEA also predicts that India will produce about 11 per cent of its power from wind in 2040. That amounts to an extra 450 million MWh of extra wind power needed in India by 2040.
An average wind turbine is rated at 3.5MW meaning it can theoretically produce about 30,000 MWh a year. However, typically wind turbines only generate about a third of the time meaning a real output of roughly 10,000 MWh per year. That means that India would need to install 45,000 wind turbines to hit the IEA's target. Given that each tonne of steel requires 800 kilograms of coal, around 6 million tonnes of coking coal would be needed to make this steel then.
Much more steel would be required to house Indians moving to cities in search of a better life. Let's just assume that the average Indian remains living in about 117 square foot per person. This is extremely unlikely but I am being conservative.
The World Bank estimates that around 280 million Indians will move to cities by 2040. Almost 30 kilograms of steel per square metre is required for an average residential apartment building. That means India needs just shy of 1 billion tonnes of steel to house these new city dwellers. That means that an extra 790 million tonnes of coking coal is required to provide new homes to people who just want a better life.
And then we move to cars, electric or otherwise. India has 22 cars per 1000 people today. Australia has 730 cars per person. China has 180 cars per person. Let's say India catches up to where China is today by 2040. India needs an extra 250 million cars to do that.
But then cars are going to probably only last for around 10 years, and they need to replace the cars they currently have, so India needs an extra 430 million cars produced between now and 2040. There is about 900 kilograms of steel in every car. Doing the math shows that we then need another 490 million tonnes of coking coal to achieve this goal.
So let's review. Just to reach some modest development goals in the next couple of decades India needs an extra 700 million tonnes of thermal coal each year, and an extra 1.3 billion tonnes of coking coal to house and transport people. Remember this does not include the embodied coal that would be needed for rail lines, power poles, bridges, ports and other infrastructure. At the end of all of this, India won't even have achieved the standard of living we all enjoy, just a fraction of it. (As an aside if the average Indian were to live in as big a house as an Australian, and drive as many cars, an extra 4.5 billion tonnes of coking coal, not 1.5 billion tonnes, would be needed).
Those protesting on our streets want to stop Indians enjoying what we take for granted without themselves making any sacrifices. But then these protestors are not going to achieve this goals because Indian people are not going to give up their hope for a better future because of a few pampered, privileged and petulant protestors in Australia. All that these protestors can then hope for is that they will shut down Australian coal mines, forcing India to buy coal from other countries. There is plenty of coal in Indonesia, Russia, South Africa and the United States, and they are rushing to sell their coal to a rising India.
So our modern day protestors are engaging in acts that are illegal, immoral and ineffective. A trifecta of tantrums from teenagers that will, you would hope, one day grow out of this nonsense.
It is not just coal and steel that will be required for developing countries. Resources will be required for the entire world to use modern products that we take for granted.
Take a mobile phone. It contains 25 different minerals and metals. Fortunately for us Australia produces or can produce 16 of these. A mobile phone contains about 20 to 40 grams of cobalt. That is mostly in its battery. There are also then 5 to 15 grams of cobalt in a laptop and 10 to 20 kilograms in a mobile phone.
Today I am releasing a new report highlighting the potential role Australia can play in the supply of critical minerals. These minerals are broadly defined as those that are important for industrial progress and emerging technologies. They are used for renewable energy systems, electric vehicles, rechargeable batteries, consumer electronics, telecommunications, specialty alloys, and defence technologies. Often critical minerals are exposed to some degree of supply risk geopolitical scarcity or trade policy settings.
Today’s report focuses on the supply and demand prospects for 6 different critical minerals - niobium, rare earths, cobalt, antimony, magnesium and tungsten. The report identifies 15 new projects in these minerals that all together would amount to $5.7 billion of investment.
The opportunities extend well beyond these but this report adds to the work the government is doing to ensure that we do take advantage of these forthcoming opportunities. We have signed an agreement with the United States to work together on improving the supply of critical minerals.
Earlier this year we released a Critical Minerals Strategy. Our strategy focuses on three areas: infrastructure, innovation and investment.
- The Northern Australia Infrastructure Facility has already funded a lithium and a mineral sands project in remote Western Australia. The Roads of Strategic Importance program is also funding road upgrades that can open up new mining opportunities, like the Mt Tom Price to Karratha Rd in Western Australia and the Tanami Rd in the Northern Territory.
- We have invested $25 million in a Future Batteries Industry CRC to find innovative solutions that can allow Australia capture more of the supply chain for battery production.
- Last year Austrade released a prospectus highlighting investment opportunities in critical minerals, and that is being followed by investment roadshows throughout the world.
Contrary to the sometimes expressed view, the mining sector is more important to a modern economy than it has ever been before. This puts Australia in a great position to continue to benefit from a long boom in demand for mining commodities.
Reduce red tape
However, the biggest barrier to taking these opportunities is the red tape that has grown over the industry over the past decade. Mining projects are complex. They require rigorous assessment of their environmental and social impacts. But we should not unnecessarily hold up investment because that will ultimately cost us jobs in the long term.
Back in 2011 a group of environmental activists met in the Blue Mountains to prepare a strategy that they called “Stopping the Coal Export Boom”. Their strategy was simple. Use the court systems to hold up projects while they ran a political campaign against coal to stop major projects.
The first part of their strategy worked they have tied up projects like Adani and Acland for years. Their political strategy failed spectacularly, however, because people want jobs in the future. Every 100 kilometres closer to the Carmichael mine site, the LNP’s vote went up 1.2 percentage point. Thank you Bob Brown!
Still, we cannot continue to allow activists to hijack our court system. Unfortunately that is what the Queensland government is doing this week by cowardly hiding behind a court process rather than finally just having the guts to make a decision. They have 12 years to make up their mind! Is it any wonder that Queensland’s ranking, according to the respected Fraser Institute, for certainty of environmental regulation has fallen to 49 out of 83 countries and is behind Russia, PNG and Congo.
We must work to improve these outcomes. That is why we have established a Productivity Commission inquiry into ways to reduce red tape in the resources sector. The Productivity Commission has been asked to look at best practice examples, both here and overseas, that remove unnecessary costs for businesses while maintaining sound oversight. This work will complement the statutory review of the EPBC Act due to commence in October this year. This will feed into the government’s deregulation taskforce being coordinated by Assistant Minister Ben Morton.
It is also part of our National Resources Statement that I released earlier this year - the first such statement for more than 20 years. The overall objective of the statement is to make Australia the best resources nation in the world and we identify 6 key areas to achieve that.
Free Trade Best Strategy
That is something we should aim to do because I think Colin Clark was basically right. Over the years to come large parts of the world will industrialise and that will require lots of resources from countries like Australia to help. We have an economic reason to do that of course. But we also have a moral cause to not deny others the benefit of the resources that we take for granted.
Colin Clark visited India around 12 times through his career. He met with Gandhi and Nehru to discuss economic policy. Colin recounted years later that Gandhi had put a position that made him a strong free market economist and Gandhi was especially critical of price controls. Of course, it would be Nehru’s more administrative designs that would guide the economic policies of India for decades. As the failure of those policies showed, the best way we can develop an economy is to remove as much of the bureaucracy as possible. Bureaucracy is actually a French-Greek word made of the French word “bureau” – which is the material used to line office desks - and “crazy” - a Greek word for power. So in English it translates as “desk-power”.
That sums it up nicely. Desk-power is not good for an economy and it is especially harmful for the millions of people in the world that remain in poverty. We need more shovels and fewer desks because that is what will help develop the world, give people a light bulb, build people a home and create hope that there will be a better world with more opportunities for their children.