Australia is moving into a new phase of the resources boom as minerals crucial to the renewable energy sector become major exports, a report from the International Monetary Fund has found.
And those emerging markets could replace $16 billion in thermal coal exports and even eat into the $27 billion metallurgical coal market, according to economists.
The IMF’s latest World Economic Outlook downgraded its outlook for Australian GDP growth for 2021 from 5.3 per cent predicted in July to 3.5 per cent due to the lingering effects of the pandemic.
But it painted a rosy picture of the country’s place in the global energy transition: Reaching net zero by 2050 and holding global temperature increases to 1.5 degrees Celsius could “substantially raise the demand” for four metals of which Australia has plenty.
They are nickel, copper, lithium and cobalt.
All four metals are used in electric vehicle engines and the creation of renewable generation and energy transmission.
Nickel and copper are already established exports delivering revenues of $13 billion a year, according to the Minerals Council of Australia.
Lithium and cobalt, which are much smaller businesses at the moment, deliver export revenues of $1.1 billion and $320 million respectively.
But the energy transition will drive up demand, as renewable power and electric vehicles take off.
“Low-greenhouse-gas technologies – including renewable energy, electric vehicles, hydrogen, and carbon capture – require more metals than their fossil fuel-based counterparts,” the IMF said.
That will spur the development of under-utilised Australian resources, which need demand growth to be viable.
Although lithium and cobalt output is currently low, Australia holds 29 per cent and 20 per cent of the world’s reserves respectively.
When it comes to nickel and copper, the figures are 24 per cent and 10 per cent respectively.
With world demand for those minerals set to skyrocket over the next two decades, these exports are well placed to compensate for the fall in revenue as the coal market declines.
“They won’t fully replace it, is my sense. But they will help to cushion the fall,” independent economist Saul Eslake said.
Thermal coal exports will decline strongly in coming decades and Mr Eslake said it would make sense for Australia to transition away from the fuel.
“We should decide when and how we get out of the business of exporting thermal coal or our customers will decide for us,” Mr Eslake said.
“It stands to reason that the transition will be more gradual and less abrupt and painful if we don’t leave that decision to our customers.”
Plan ahead for coal exit
Australia could develop a plan to get out of coal exports over time, which would give buyers a chance to develop alternative fuel sources and allow workers to move into other industries, Mr Eslake said.
The IMF’s report was released on the same day that the NSW government and resource magnate Andrew Forrest unveiled a $3 billion green hydrogen plan for the state.
Green economy lobby group Beyond Zero Emissions had recently released a report predicting that renewable energy and the industries that service it would create a $333 billion investment push, said Nicki Hutley, an economist and councillor at the Climate Council.
“The International Energy Agency says that by 2040 the demand for critical materials [for the green economy] will be greater than the combined value of fossil fuel production,” Ms Hutley said.
It may be more than just thermal coal on the way out, too.
Technological developments and increased recycling will see the demand for metallurgical coal used in steel making also diminish.
“The risk for producers of metallurgical coal is that it gets replaced by hydrogen,” Mr Eslake said.
Steel has been produced in Sweden using hydrogen instead of coal and the pledges on hydrogen investment made recently demonstrate that there is a big focus on the possibilities of the fuel.
As the Chinese economy changes focus from massive infrastructure builds to more consumer-driven digital services, the country’s appetite for steel-making coal will wane.
No more coal to China?
Coal and iron ore export giant BHP is already calling out that possibility.
“In its last annual report, BHP said they expect China to be in the position of servicing most of their steel needs by recycling scrap some time in the 2030s,” Mr Eslake said.
Scott Hamilton, executive director with the Smart Energy Council, sees massive growth in the metals called out by the IMF.
“There is a huge potential for Australia to have a really big economic boom associated with decarbonisation and the transition to net zero,” Mr Hamilton said.
That potential was heightened by the rich renewable energy resources the country enjoyed.
“We’ve got the cheapest wind and solar capacity in the world, which can be used in creating energy and adding value to our natural resources,” Mr Hamilton said.
