Political 'solutions' simply shift profits, problems elsewhere

Taxpayer subsidies for the Adani coal mine will not solve regional unemployment; at best they will simply shift it from one region to another. As investment in renewable energy soars around the world, global coal demand has fallen for the last three years in a row. But Minister Canavan doesn't only want to subsidise the construction of an enormous new coal mine at a time when the market says it's not needed, he wants to subsidise the opening of at least four other new mega mines in Queensland's Galilee basin, mines with a combined export capacity large enough to nearly double Australia's thermal coal production exports. What could go wrong?

According to coal industry modellers Wood Mackenzie, if the new mines in the Galilee basin supply 150 million tonnes of new coal each year, the coal output from the Hunter Valley will be cut by more than 85 million tonnes per year. Similarly coal production in Queensland's Bowen basin will fall by about a third and new mines in the nearby Surat basin will not proceed. The Minister for Northern Australia is not only unconcerned about NSW coal workers, he doesn't even care about coal workers in southern Queensland.

Much has been made of the fact that Adani's own economic expert admitted in court that the Adani mine would only create 1464 jobs rather than the ''tens of thousands'' claimed by Malcolm Turnbull and others. But it won't even create that many. While the government still lists the mine as producing 60 million tonnes a year, the current proposal is to start with a mine of 25 million tonnes. A smaller mine means fewer jobs.

It gets worse. Dr Fahrer's estimate of 1464 was based on the employment potential of an average Australian coal mine, but Adani has been telling investors that its new Queensland mine will be the most technologically advanced in the world and that it will be automated ''from pit to port". Not only will the subsidies to Adani see coal production shift from NSW and southern Queensland to far north Queensland, they will see coal production shift from unionised workplaces in the South to robotised workplaces in the North.

Some may argue that Barnaby Joyce and Matt Canavan are doing a stand-up job of delivering for their local constituents. Of course others might argue that using your position as a cabinet minister to divert money collected from across the country to drag jobs from other parts of the country to your home town is a fundamental dereliction of duty. The Constitution is silent on the distinction.

But leaving the politics aside, the economic consequences of spending $25 million to relocate the Australian Pesticides and Veterinary Medicines Authority to Armidale and spending $1 billion to shift Australia's coal export capacity from the Hunter Valley to the Galilee Basin are highly significant. Put simply, rather than invest taxpayers' money in building additional productive capacity that augments what we already have, the National Party have hit on the idea of spending taxpayers' money to build things in their electorates that not only replicate what we already have, but make those existing assets in other regions redundant. It's not even a zero sum game; it's a negative sum game.

For all the talk in Australia about the need to create jobs and grow the economy, the fact is that when it comes to deciding how many coal mines, gas export hubs and oil wells we need in Australia, we leave the question primarily to judges in planning cases and cabinet ministers in marginal seats. It is well known that when the Queensland Land Court approved the Adani coal mine they were not required to consider the impact of burning the two billion tonnes of coal the mine will produce over its life, but few realise that when Australian courts approve new resource projects, they aren't required to look at what other resource projects are already in the pipeline and what the cumulative impact of all of those projects would be on the national wealth. Each project is approved in isolation.

According to the evidence tendered in support of every mine built during the mining boom, no mine was responsible for the downsides of the mining boom. None of them were responsible for driving up the exchange rate to the detriment of the manufacturing industry. None of them were responsible for driving up interest rates to the detriment of everyone with a mortgage. Every mine proponent argued "not me', your Honour. My project only delivers benefits, it's all the other projects that cause the costs".

An extreme example of the way that a short-term focus on local construction jobs can have devastating national economic consequences was the decision to build three new gas export facilities right next to each other in Gladstone at exactly the same time. All three of the projects claimed they would boost Australia's gas exports and not one of the three said they would be responsible for driving the price of domestic gas up by 300 per cent.

Countries like Saudi Arabia figured out decades ago that the way to get rich from natural resources wasn't to dig them up as fast as possible but to hold back supply and drive the price up. Australia has a larger share of the traded coal market than the Saudis have of the world oil market, but the Minister for Northern Australia is more interested in poaching a few jobs from Southerners than maximising the value of Australia's scarce natural resources. The Wood Mackenzie modelling suggests that new Galilee coal mines will push the world price of coal down by more than $20 per tonne.

If the Saudis doubled their oil output, everybody knows the world price of oil would fall. But as Minister Canavan prepares to use taxpayers' money to facilitate a doubling in our coal output at a time of flat world demand, there is no agency or legal test for considering the impact of new resource projects on our national interest. The Queensland Land Court was told by Adani that their mine would not be the one to push the coal price down. No doubt the other four mega-mines in the Galilee Basin that the Minister is hoping to subsidise into existence will claim similarly, ''It wasn't me, your Honour.''

If Australia is to overcome the tension between the instincts of local members and the needs of the national economy then we need to have a National Interest Test for major resource projects, especially when taxpayer subsidies are required to get them off the ground. No one disputes the need to create jobs and opportunities for people in remote parts of Australia, but no one has ever been forced to make the case for how giving a $1 billion subsidy to an Indian coal company to build an automated coal mine is the best way to help the hundreds of thousands of unemployed people in regional Australia. Its time they did.

Richard Denniss is The Australia Institute's chief economist. Twitter: @RDNS_TAI