The Coal Transition

Is a Mining Company Prospecting Near Your Town?

Policy advice for towns and regions surviving the lifecycle of mining

Susan Krumdieck advice to New Zealand Green Party Co-Leader Jeanette Fitzsimons

The story told by policy makers and mining companies is that mining and resource extraction is good for the economy - IT MAKES THE ECONOMY GROW.

This is of course true, but it is only half the truth.   Mining is always a boom and bust cycle. We have not found any examples, amongst all of the clever people on the planet, where anyone has  somehow made extraction of a finite resource into a perpetual benefit proposition. The people who have invested in building the new houses for the mining town and infrastructure for milling and freight, will have jobs for a time and then will move on. During the build up phase, the local schools, clinics, water supply, sewer system and police service will be overwhelmed and service will suffer. The community will struggle to find the money to pay for the added infrastructure and services. The people who used to live in that environment, the “locals” may get priced out of homes and farms, and the clean water and forests that they used to have will be degraded. Then the builders and their families will move on, the mine workers will be there until the international corporation decides the mine is not profitable and with pretty short notice they will close down the operation. NOT when the resource is depleted, but when their profit margin is heading downward. Then the miners and their families will leave, property values will plummet, the council will struggle with paying for services with declining rates revenues, retail businesses will go out of business, and the post-boom decline will end up either as a ghost town, or will revert to a small rural town – but possibly impoverished environmentally and economically. That is the real deal.

MINING IS NOT A PERPETUAL BENEFIT PROPOSITION

Somebody makes money on mining. There is no doubt about that. But they make a lot of money because they do not have to pay for the externalities. They work hard on their exit strategy so they don't have to pay for the mess they make (e.g. go bankrupt). They certainly do not have to take care of the miners, and the associated mining town when they shut down operations.

The deal you make with mining should be made with eyes wide open. Gold mining might leave behind a few nice civic buildings in the mining town. But there will be a time of glory days, and then there will be a contraction. There is no other way it plays out.

There is definitely a political panic when the mine gets to the end. There is of course the scramble to dig deeper or open another mine. But the law of low hanging fruit means that even with subsidies and concessions, the mining town begins its inevitable march of contraction and decline. 

There have been countless shut-downs of factories and businesses in all towns. But mining settlements are different.  It is not a gradual shift of the economy like it is in cities that have manufacturing, education, civic operations, software companies, ports....  A mining town is usually in a place that is specific to the mine.  In our study of cities, towns and settlements around the world and throughout history, one thing becomes clear. Mining towns are future ghost towns.

MINING TOWNS ARE FUTURE GHOST TOWNS

Can't we transition a mining town to some green alternative economy? 

The answer depends on if the town has any green reason to exist. It would be a worthy project to have an in-depth look at Westport and carry out a Transition Engineering project there to see if some re-development projects can be initiated. But really - the best thing to come out of the struggle these families are going to face is wisdom.

How would we do things differently if it was clear at the beginning of the opening up of a mining operation that the settlements around would be likely to be abandoned in 20-50 years?  How have we learned from all of the previous mining towns? 

If I was going to set policy for the government and work out the deals with extraction corporations…. I would have a national policy for local extractive industries that require the mining enterprise to provide the housing, infrastructure and services for their workers and require them to set aside sufficient profits to dismantle that settlement and clean up the site after the boom has played out. This separation of the boom and bust economy from the sustainable economy would put the real price of the extractive industry into the profitability assessments at the outset. It would allow some spill-over benefits in the local economy in the form of a larger customer base for retail and café’s, but without putting the burden on the local community, and without the destructive inflation/deflation cycle of property prices. This would be fair and fine, and would mean many fewer mines unless the price of the coal was much higher (we'll get to that later).

Why would this policy work?  

Because Rio Tinto and Bathhurst already do this kind of extractive development. They already have the whole system worked out. They do it where there is no local community in the area of their mine. They know how to do it. But they will only do it if forced to. It is in our interest as a country and as local communities to have that forcing function.

Now what about Westport? 

It is clearly too late to require Solid Energy or Holcim to mitigate the boom-and-bust risks. Westport is becoming a post-mining town. There was considerable angst around the closing of the operations, and there was property value destruction and population flight. Now the people of the area will use resourcefulness instead of resource extraction.  The government can’t do much more than make sure that it has a socialist approach to rural communities: use revenues from the bustling business activiteis in the urban centres to fund the basic transport, electricity, education, medical, water and waste infrastructures in our rural areas. That is a policy setting that could give confidence to anyone resourceful enough to set up their business in a small rural town. There are a lot of examples of these remotely located globally connected enterprises. The thing they MUST have is strong local quality of life and infrastructure. The government policy should not aim to pick winners or stimulate any particular business. Rather the policy should signal very clearly that it will ensure affordable access and provision of quality services. Then the people who know their own talents and their own businesses and customers will consider locating there. The government could provide incentives for rural sustianable business development through insurance cover on loans or other tax breaks for the start-up period…. But do not get into the business of trying to do business.

And where there is still a mine?

The transition to low carbon is a funny thing. It requires a rebuild, so requires investment of high thermal quality fuels and minerals. But this investment in the low carbon infrastructure has to be capitalised. Regional development grants to areas with flagging mining industries does not necessarily result in the low carbon transition re-development. So here is a heretical policy idea. Prepare yourself. 

The Coal Transition Act

Coal producers are allowed to collect a $250/t Carbon tax - That's right the price of domestic coal goes up. The Act also imposes the same carbon tax on imported coal. The coal mining companies operating in NZ cannot take that tax off-shore. They can only use it to invest in improved safety for miners, or new low carbon business development projects. The demand for coal at the transition price will go down, likely because of efficiency projects by big users. Huntley coal power plant will shut down. Coal companies can invest in any number of good business propositions - setting up new wood fuel supply businesses. Yes, Solid Energy set up Nature's Flame when coal price was high, and NF is still running while Solid Energy is gone. Many coal boiler customers could co-fire with wood or convert to a wood fuel if there were suppliers. Giant coal mining companies helping themselves to NZ coal can find other things to invest in like a rail service or a property re-development, as long as the designs have the demonstrated low-carbon certification. How would coal companies figure out these new businesses? It is always high risk to apply your resources to a new venture. The Act also establishes the Carbon Transition Incubator at Canterbury University. The engineering R&D support needed by industry will be available (just as in all previous phases of industrial development) to help work out the modelling and grow the engineering, management and economic base for these new businesses. 

The legacy of coal is lamentable. 

The future of coal without intervention is the loss of hope. 

The transition of coal is the possibility we are looking for.