Devil is in the detail

In August 2016, the Australia Institute (TAI) released the discussion paper 'Never gonna dig you up! Modelling the economic impacts of a moratorium on new coal mines'. The main conclusion of the paper was that the Australian economy would be 'barely affected' by a moratorium placed on the approval of new coal mines and mine expansions.

Cadence Economics was commissioned by the NSW Minerals Council, the Minerals Council of Australia and the Queensland Resources Council to independently review the modelling undertaken, and test the conclusions drawn in the paper.

All of the conclusions in our analysis are based on figures reported in the discussion paper and other external sources such as the Commonwealth Treasury. Importantly, we test the analysis undertaken against their recently released code of conduct.

Our report finds significant issues with the paper and the conclusions drawn, including misrepresentation of modelling assumptions as modelling results, misleading presentation of economic results, lack of transparency around funding of the analysis, and calculation errors.

One of the key elements of the analysis undertaken by TAI is that the impacts on Australian employment of the proposed moratorium are inconsequential. Based on TAIs figures, we estimate that the cumulative loss to Australian GDP is $57 billion in discounted 2014 dollars (using a 7 per cent real discount rate), or $177 billion in undiscounted 2014 dollars. Importantly, the reported outcome of a net loss of only 1,400 jobs is in face a modelling assumption, with the TAI report (page 50) noting that:

This labour-market assumption reflects the idea that in the long run national employment is determined by demographic factors, which are unaffected by conditions in the coal industry.

Even accepting the assumption of no employment impacts of the proposed moratorium, the paper fails to highlight the significant economic costs to NSW and Queensland. Based on TAI's own figures, we estimate that:

  • Over the period 2019 to 2040, the discounted economic cost of the proposed moratorium is around $57 billion for NSW ($154 billion undiscounted) and $72 billion for Queensland ($225 undiscounted), a combined $129 billion loss (around $380 billion undiscounted).
  • By 2040, the job losses in NSW and Queensland are around 33,000 and 27,500 respectively, just over 60,000 in total across these coal producing states.
  • Royalty payments across NSW and Queensland would be around $6.6 billion in discounted dollars ($21 billion undiscounted) lower over the period 2019 to 2040, around $2.8 billion and $3.8 billion discounted respectively calculated on a pro-rated basis ($8.8 billion and $12.2 billion undiscounted respectively).

These costs are magnified, in relative terms, across key coal producing regions. We estimate:

  • In the Hunter, the economic costs of lost production are around $23 billion in discounted terms ($210 billion undiscounted) over the period 2019 to 2040.
  • The discounted loss in economic activity in the Fitzroy and Mackay regions are around $9 billion ($65 billion undiscounted) and $2.3 billion ($18.5 billion undiscounted) respectively over the period 2019 to 2040.

Finally, based on the projected decline in real wages from TAI's paper and their forecast of Australian employment of 16 million by 2040, the labour market parameters used by the Commonwealth Treasury would yield an estimated reduction in employment of between 19,200 and 38,400.

TAI has not followed its own 'Modelling Code of Conduct', in relation to transparency around funding, assumptions or the plausibility of the results.

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