New coalmines in Queensland don’t help existing communities, they hurt them

This week in Queensland, Anthony Albanese has been devastating in exposing the lies, hypocrisy and absurdity of the National party’s election “promise” to build a new coal-fired power station. That even the idea of building such a power station hasn’t demolished the economic environmental and political credibility of the Morrison government tells you a lot about what is wrong in Australian politics today.

But how do we square the circle on the broader coal debate? Internationally, the debate between those who think it’s time we talked about fossil fuel supply (think Adani, the Keystone XL pipeline or the Canadian oil sands) and those who want to keep the focus on fossil fuel demand (think talk of targets, trajectories and closing down coal power stations) has been brewing for some time.

But there’s no need to fight. Alfred Marshall was the economist who invented what we now think of as supply and demand curves. He was once asked whether it was supply or demand that determined price – his response was that it was like asking if it was the upper or lower blade of the scissors that did the cutting.

Related: Albanese plans to visit mine workers on first Queensland tour as Labor leader

There is nothing in an economics textbook that says we need to choose between focusing on the supply of fossil fuels or the demand for them. In fact, economics textbooks suggest that when it comes to a big problem like climate change, we should cut with both arms of the scissors.

The good news is if we are willing to take a new look at old arguments, we can develop win-win solutions to problems that can sometimes seem unresolvable.

As Albanese has said, it’s important to differentiate between thermal and coking coal. That’s true, and when we do, we can see that none of the new mines such as Adani being proposed in the Galilee Basin produce coking coal. But if we go further down the road of arguing that not all coalmines are created equally, we can find even more common ground.

If, for example, we distinguish between existing coalmines and proposed coalmines, we can develop policies which effectively “grandfather” our treatment of the mines we already have while imposing much tougher rules on proposed new ones.

The opposition leader is right to say it would be economically reckless to close down all existing coalmines overnight. But that doesn’t mean that it is economically or environmentally responsible to open up new coalmines in regions that have never mined a tonne of coal.

Once we separate calls to stop opening new coalmines from calls to shut all coalmines down tomorrow, a range of economic and political possibilities present themselves – the most important of which is that by preventing any increase in the supply of coal from new coalmines, we can actually keep the price of coal higher, keep the existing mines operating for a bit longer, and in turn, keep the existing coal workers in existing coal regions working longer. Put simply, new coalmines in far north Queensland don’t help existing coal communities, they hurt them.

The Morrison government often tells us that if we frack more gas, the price will fall and if we build more coal-fired power stations electricity prices will fall, but they don’t talk much about what would happen if Australia opened up the Galilee Basin and doubled our coal exports. That’s because the answer is that it would push the world price of coal down and the world’s consumption of cheaper coal up.

Australia is the world’s largest exporter of coal. When it comes to exportable coal, Australia has a bigger share of the traded coal market than Saudi Arabia has of the world oil market. Our supply decisions matter. A lot.

Back in 2011, Queensland suffered from catastrophic flooding, and the floods disrupted Queensland’s coal export facilities. The world price of coal shot up for the same reason that the world price of oil shot up when terrorists attacked Saudi Arabia’s largest oil refinery this year. Supply decisions affect price.

Flooding the world coal market with an extra 200 million tonnes of Galilee Basin coal will push the price of coal down, down, down, along with production and employment at other Australian coalmines.

But don’t take my word for it. Adani’s own evidence to the Queensland land court showed employment in other Australian mines would contract. The Port of Newcastle has argued publicly that new coalmines in Queensland will lead to coal job losses in the Hunter. Even Joel Fitzgibbon was quoted saying that the economic warnings about the impact of the proposed new mines in Queensland’s Galilee Basin on the Hunter coal industry were “absolutely correct”.

Again, once we distinguish between the economic impacts of opening new mines from the economic impacts of shutting existing ones, the political landscape looks quite different. Similarly, once we understand that supply and demand interact, the policy case for focusing on both fossil fuel supply and fossil fuel demand makes a lot more sense.

But rather than plan a gradual transition out of coal by allowing existing mines to wind down on schedule over the coming decades, the New South Wales, Queensland and federal governments are offering a wide range of subsidies to build new ones. Subsidising new coalmines is a poor way to fund our schools and hospitals and it’s an even worse way to help existing coal communities. As Queensland’s Treasury has said, “spending on mining related infrastructure means less infrastructure spending in other areas, including social infrastructure such as hospitals and schools”.

It gets worse. The NSW government’s policy for setting coal royalties states: “Royalty rates are set to encourage present and future exploration and development of mineral resources.” And so keen to open new coalmines is the Queensland government that they a have offered a “royalty holiday” for the coal itself which would amount to an enormously expensive “dig now pay later” scheme. Of course, that assumes that Adani will be around in the future to pay later. But the consequence of this interstate “competition” to attract new coalmines is that Australian taxpayers, and the world’s climate, pays a high price.

But with absurdity comes opportunity. Imagine if Australia had a national plan to manage the decline in coal, a decline that even the coal industry accepts will come “in the decades to come”. Imagine if instead of subsidising new mines to come and compete with existing coalmines, we tried to protect existing coal communities and the environment at the same time.

Related: Global use of coal-fired electricity set for biggest fall this year

If such a plan was based on economics, not spin, it could be simple and cheap:

Step 1 – Stop building new coalmines – you can’t transition out of coal while you are still building new coalmines.

Step 2 – Admit the obvious: new coalmines push down prices and threaten jobs in existing coalmines.

Step 3 – Keep existing mines open for longer by preventing new ones from opening. That’s the fairest way to help existing coalminers in existing mines and an easy way to help the climate.

Step 4 – Increase the very low coal royalties and raise a lot more revenue from existing mines (for context, Saudi Arabia has a tax rate on oil companies of 85% – and no lack of foreign oil companies).

Step 5 – Fund regional development from the increase in revenue that will accompany higher royalty and company tax revenues. We just need NSW, Queensland and the commonwealth cooperating to help existing communities instead of competing to help foreign coal companies establish new ones.

Step 6 – Ban robot trucks and robot trains. What’s the point of causing climate change from mines that don’t even employ anyone in regional areas?

With faith in politics at record lows, temperatures, pollution and bushfire damage at record highs, it’s a brave politician who hopes that the issue of coal exports will fade away like the Sydney Opera House behind its new shroud of smoke.

Sure, it’s hard to imagine states cooperating with each other for the benefit of their citizens, but now more than ever Australia needs some blue sky thinking.

• Richard Denniss is chief economist at the Australia Institute