Floods and Coal – The Water-Energy Nexus Redux

by Lakis Polycarpou | January 10, 2011

A week and a half of torrential rains and arrival of a tropical cyclone on Christmas has inundated northeast Australia–causing flooding on what some commentators have called a “Biblical” scale, with water covering an area the size of France and Germany combined.

Miraculously, so far only nine people have died, a stark contrast to the nearly 2,000 Pakistanis who perished in last year’s flood there—a contrast some have pointed to as a cruel example of the difference between the way rich and poor countries experience natural disasters, and the significant difference the competent response of government makes. (Though to be fair, some 20 million people were directly affected by the Pakistani floods, compared to some 200,000 in Queensland, Australia—if you look at the death rate per capita, it would be slightly less than half in Australia, and there may be more Australian casualties to come).

Beyond the human toll, the floods in Australia have other repercussions, the most notable being the effect on the global coal market. According to Reuters, “Australia’s $50 billion coal export industry has been brought to a virtual standstill,” with floods closing major ports, washing out railroad lines and flooding coal mines themselves.

Australia exports about 40 percent of the world’s “coking coal” – that is, bituminous, or metallurgical high quality coal used to make steel. Some analysts think that coal prices could rise to $330 per metric ton, or some 30 percent over the next few months.

There are potentially bigger implications; as energy commentator Tom Whipple points out, China, whose coal demand has grown at about 10 percent per year for the last decade, is facing a wall in production. In November the Wall Street Journal reported that China, which depends on massive coal consumption to run its economy, may be facing its own “peak coal.”

Whipple speculates that given China’s need to begin importing coal, events like the Australian flood could have surprising consequences, including “an outsized impact on oil prices in the next few months, right down to what you pay for gasoline at your local pump,” given China’s history of increasing oil imports to keep factories running with emergency generators to make up for coal shortages.

All of this could, in turn, spur global inflation and threatening the already weak global economy. There is, of course, a dark irony in all this, given coal’s own outsized role in exacerbating climate change—which in turn makes catastrophic floods like those in Australia more likely over time.

On the other hand, China has also introduced feed-in tariffs to help spur the development of renewable sources of electricity, and the country is dramatically growing its renewable energy industry, causing some cleantech promoters to speculate that it won’t be long before alternative energy sources reach “grid parity” with coal—that is, finally making wind and solar power cheaper than coal production.

Let’s hope it happens soon—better we shut down coal production before the climate does it for us.

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