Adani's rail line cut shows project is on life support but still a threat to climate | John Quiggin

The recent announcement by Adani that it will halve the costs of its rail line to the proposed Carmichael coalmine by building a shorter, narrow-gauge line raises an obvious question: if such a massive cost-saving is feasible, why didn’t Adani go that way in the first place? The short answer is this is the latest in a string of changes that have massively downsized both the Carmichael project and the bigger plans to develop the Galilee Basin. The longer answer is that, despite optimistic talk about a long-term future for coal, the writing is on the wall. The only way to make money out of coal is to do so quickly, before the present gradual decline turns into a collapse. The original Adani proposal, put forward in 2010, was for a mine producing 60m tonnes of coal a year. The coal would be transported along a completely new 388km standard gauge rail line to a newly built terminal at Adani’s Abbot Point coal terminal. The coal would then be shipped to Adani’s rapidly expanding fleet of coal-fired power stations in India, most notably the 4,620MW plant at Mundra. The oft-repeated claims of 10,000 jobs and billions in revenue (much inflated by spurious economic analysis) refer to this initial proposal. The rail and port expansion would allow the shipping of Adani’s 60m tonnes a year. In addition, it would allow the opening up of the entire Galilee Basin, with potential exports of up to 300m tonnes a year. Other proposed mines in the region are owned by firms such as GVK Hancock and Clive Palmer’s Waratah Coal. Such a development would make it far more difficult for the world to reduce carbon dioxide emissions enough to stabilise the global climate. As prospects for coal declined, and finance dried up, however, the project was cut back in 2017 to a first stage, with planned exports of 25m tonnes a year. Initially, the rail and port components of the project were left unchanged, with the idea that they would be used in subsequent stages. In early August, however, Adani dropped the idea of building a second port terminal, opting instead to ship Carmichael coal through its existing terminal, which is badly underutilised. The other shoe dropped on Thursday with the announcement that the massive new rail line would be replaced with a connection to Aurizon’s existing line. Meanwhile, staff numbers at Adani’s Townsville headquarters have been slashed. The combined effect of the cuts is to keep the Adani project alive for the moment, while closing off any realistic prospect of a massive expansion in the Galilee Basin as a whole. That’s a decidedly mixed prospect. On the one hand, 25m additional tonnes of carbon a year would be bad for the global environment. On the other hand, the catastrophic prospect of 300m tonnes a year appears to have been averted. Even with the latest cost reductions, the Carmichael mine is not an economic proposition in the medium term. The Mundra power station, its putative prime customer, has been unable to operate profitably using imported coal. Like much of India’s fleet of coal-fired power stations it has been operating well below capacity, and has been shut down for extensive periods. Rather than building new power stations, the Adani Group has found it cheaper to buy up the distressed assets of its competitors. That makes the group bigger, but creates no new demand for coal. Because of its poor economic prospects and the reputational damage associated with a new mine, commercial lenders in Australia and around the world have refused to finance the Carmichael mine. However, as Tim Buckley of the Institute for Energy Economics and Financial Analysis has pointed out, the scaling down of the project has brought its capital cost down to a level where Gautam Adani could finance it out of his own wealth. And Adani may be more motivated by the desire for a win than by concerns about his global reputation. If the mine is to be stopped once and for all, it is necessary to keep up pressure against it at every stage, from pit to port to power station. The paradoxes of Adani are mirrored in the global coal market. Despite a small increase in 2017, global coal production is below its 2013 peak. Yet prices have recovered strongly, yielding big profits to existing miners and offering a seemingly tempting prospect for new mines. On the other hand, the future for coal looks bleaker than ever. The “pipeline” of future coal plants in China and India has shrunk massively, with cancellations far outweighing new announcements. Meanwhile, in the OECD countries, early retirements of coal plants are announced with increasing frequency, leading to the likelihood that many jurisdictions will be coal-free as early as 2030. Britain is already on the verge of coal-free summers. Cancellations and announced retirements have no effect on the current demand for coal, and power stations commissioned years ago are still being connected to the grid. On the other hand, additional supply from new mines is limited because the long-term prospects are so poor. With China closing large numbers of small mines, the scope for additional supply is limited. The result has been a short-term surge in prices. That creates opportunities for anyone who can get additional coal to market quickly, but it also exacerbates the problems of struggling coal-fired power station operators in India and China. Combined with ever-decreasing costs for solar, wind and storage, the current high prices will accelerate the rate of retirements. The end of coal is coming. But whether it comes fast enough to allow us to stabilise the climate remains to be determined. Even scaled down, the Carmichael mine would represent a damaging new source of emissions. Let’s hope that Gautam Adani finally sees sense.