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Anglesea, on the surf coast west of Melbourne, is a pretty little town. Fine beaches, good surf, kangaroos on the golf course. It’s the spot where the Great Ocean Road begins its spectacular winding course along Victoria’s south-west coastline.

But for the past 46 years, Anglesea has also had a dirty big secret.

Just a couple of kilometres inland, and almost surrounded by national estate bush, is an ugly scar on the landscape, an open-cut brown coalmine and associated power station, built in 1969 specifically to service the Alcoa aluminium smelter 40 kilometres away at Point Henry, near Geelong.

In relative terms it is not a very big operation. The power station at Anglesea only generates about 150 megawatts of electricity, compared with more than 1500MW produced by the now-infamous Hazelwood power station at Morwell, where a mine fire last year burned for

45 days.

But while Anglesea only produces 10 per cent of the power, it produces three times the amount of sulphur dioxide. In 2013-14, it pumped out 43,000 tonnes of the toxic gas. Proportionate to its size, it is by far the biggest emitter of SO2 among all Australian power plants. Only three others produce more, and they do it while generating 10 to 14 times as much electricity.

“You can see that Alcoa might think the ante was about to be upped.”

Its aged technology and low-quality feedstock also make it a very high emitter of greenhouse gases, at about 1.2 tonnes of carbon dioxide for every megawatt-hour of power. And it pumps out high levels of carcinogenic fine particulates.

Even compared with an exceptionally dirty operation such as Hazelwood, Anglesea is an extraordinarily dirty operation.

Local residents only began to become aware of this, though, about five years ago, after Anglesea Primary School was relocated to a new site near the mine and power station, on land bought from Alcoa by the state education department.

“A group of parents – mostly mums and including a couple of doctors – began asking about what was coming out of the mine and stacks,” says Andrew Laird, a barrister and spokesman for Surf Coast Air Action (SCAA), the community group that evolved out of those concerns.

The facts were not easy to find. The Victorian education department had done an environmental assessment as part of the process of moving the school, but refused to make it public. The group managed to get it through a freedom-of-information request.

But there was also a second report, commissioned by Alcoa itself, which was even harder to get, as the company had been granted an exemption from FOI laws. Finally, under political pressure led by Greens MLC Greg Barber, it was released in late 2012.

“Having read those documents,” says Jacinta Morahan, a medical doctor and another prime mover of SCAA, “I certainly wasn’t reassured.”

In most of the developed world, a power station would not be allowed to emit such large quantities of sulphur dioxide. It would have to be fitted with “scrubbers” – technology that can remove almost all SO2, as well as a lot of other dangerous pollutants, including particulates and heavy metals such as mercury.

Morahan decided to send her kids to another school and continued to campaign with SCAA for Alcoa to either clean up the plant or close it. Alcoa was resistant to the idea of installing scrubbers, at a likely cost of $150 million or more.

Then in February last year, coincidentally while the coal pit at Morwell was burning, Morahan, Laird and others concerned about Anglesea got news that gave them hope. Alcoa announced it would close its Point Henry smelter in August. With the smelter closing, they assumed there would be no need for the mine and power station built to service it. But Alcoa did not close the Anglesea power station. Instead it applied to the Victorian government, successfully, for permission to plug Anglesea into the power grid.

1 . Surprise closure

And so the operation continues to generate its dirty power. Indeed, it has been running flat out, often generating more than its rated capacity, as Tristan Edis noted in Climate Spectator just a couple of weeks ago.

“In spite of depressed levels of power demand and intense levels of competition in an oversupplied market, the power station achieved 94 per cent utilisation in the prior financial year. This is one of the best utilisation levels for any power station across the entire national electricity market and a testament to its low cost structure…” he wrote.

In the circumstances, Alcoa’s announcement of May 12 that it would close the Anglesea coalmine and hence the power station at the end of August this year came as a surprise.

According to the company, it was a commercial decision, pure and simple. They had tried for 14 months to sell the plant, without success.

“We tested the market, and in the end couldn’t reach a sale,” says Alcoa’s director of corporate affairs, Brian Doy. “It’s a very small plant. In a market where the prices are very low it can’t compete against the bigger facilities.”

But others question this. Andrew Laird is one who points to evidence suggesting the operation was still quite viable.

“They pay next to nothing – 29 cents a tonne – for the coal they mine down here. The plant is fully depreciated. Alcoa asserts it’s very well maintained. It’s online 95 per cent of the time.”

An alternative explanation for Alcoa’s decision to shut the Anglesea mine down is that it – and the potential buyers who were lobbied by Surf Coast Air Action – has sniffed the wind and realised it doesn’t smell of sulphur.

Australia’s regulation of emissions is very weak by international standards. But over recent years there have been moves to change this.

As Morahan explains: “The national environment protection council [a subset of the Council of Australian Governments] declared back in 2009 that current standards do not protect health.

“And these out-of-date and inadequate standards are the ones the education department and Alcoa relied on [in their reports] and which mining companies are presenting to communities like ours to misinform people into believing their operations are safe.”

Under the previous federal Labor government, she says, the environment protection council began the process of reviewing emission standards. It found the standards inadequate for sulphur dioxide, nitrous oxide, carbon monoxide, particulates and ozone.

“The review was to have been done by the end of 2014,” Morahan says, “but after the change of government Greg Hunt announced it was being pushed back to mid-2016, and the only pollutant which would be reviewed was particulates.”

Subsequently, sulphur dioxide was added. Morahan credits the local federal Liberal MP, Sarah Henderson, for effecting the change.

“Greg Hunt and the state environment ministers are looking at a discussion paper right now.”

Morahan’s organisation put in a detailed submission, and she remains hopeful that the wider range of pollutants will be considered, even though the issue is now probably a moot one for the Anglesea community.

2 . Hazelwood inquiry to reopen

Nicholas Aberle, of Environment Victoria, offers another potential factor in Alcoa’s unexpected decision: “Something changed about six weeks ago, which is that the new Victorian government announced the reopening of the Hazelwood inquiry.”

The inquiry will examine not only the health effects on people affected by the 2014 fire – and a spike in deaths that might have been a consequence – but also broader issues relating to all Victoria’s coalmines.

The terms of reference explicitly require the board of inquiry to look at short-, medium- and long-term rehabilitation options, and to advise whether current rehabilitation bonds are adequate to ensure miners clean up after themselves.

“One wonders how much effect that might have had on Alcoa’s decision to jump now,” Aberle says.

“The mine is on the Anglesea heath, which is a national estate listed area. It’s almost entirely surrounded by the Great Otway National Park. There has been talk of incorporating it in the park.

“So you’ve got potential national park, a company that is not usually in the business of running a power station, the rehabilitation plans for mines are about to be reconsidered by a state government inquiry – you can see that Alcoa might think the ante was about to be upped.”

Alcoa’s Brian Doy specifically denies this. He also confirms, though, that there was no rehabilitation plan agreed with the state when operations began back in 1969. Standards were different then.

Nonetheless, Alcoa has done significant and – as some local landcare groups concede – quite successful work in restoring parts of the site with native heath. But rehabilitating a 200-hectare hole in the ground is a massive endeavour, particularly if it has to be done to the standards of a national park. Alcoa has only just begun negotiating terms with the state.

“There’s a bunch of work to do with site assessments and such things. It could take three to five years or even longer,” Doy says. “We don’t know yet.”

Alcoa may yet follow through. But miners in Australia have a shocking record when it comes to rehabilitating old sites. In Queensland alone, the auditor-general has identified 15,000 abandoned mines.

Nationally there are likely to be several times that number, not to mention many more where companies have simply placed unprofitable mines on permanent “care and maintenance” so as to avoid their clean-up liabilities.

But the prospect of multibillion-dollar costs falling on the states has begun to concentrate some minds. The Western Australian government, for example, has just released new mine closure guidelines, including for the first time the giant Pilbara iron ore mines.

Coal operations, both mines and power stations, are shaping up to be particularly problematic as the fast-changing electricity supply market will make many increasingly marginal in coming years.

Indeed the industry is beginning to eat itself. AGL, the largest supplier of power in the country, which also happens to own newer and more efficient plants and is getting increasingly into renewables, has begun lobbying to have other older, dirtier operators shut down.

“There is a real risk taxpayers will be left holding the can,” says Aberle of Environment Victoria.

“The bonds are comically low. The three Latrobe Valley mines have bonds of $15 million. The actual cost of rehab is likely to be $150 to $200 million if not more. AGL probably won’t walk away from Loy Yang, because it’s relatively new. But the intel on Hazelwood is that it’s on its last legs. They’re not doing maintenance work. The moment where it just falls over is looming.”

So the agreement that Alcoa reaches with the state about rehabilitation, and the diligence with which it follows through over the next few years, assumes an importance out of proportion to the little Anglesea mine.

It is a test case of the state’s capacity to make industry clean up. It is, pardon the pun, the canary in the coalmine.