How Capital Markets and the West laugh in the face of carbon emissions - while looking holier than thou!

The Carbon Tracker Coal Report

In the FTSE 100 44.46 GtCO2 of proven coal reserves were owned by 16 companies, of which 15.4 GtCO2 are located in Australia i.e. one third of the coal listed in the UK is located in Australia.

The Australian Carbon Tax

From 1st July 2012 Australia will introduce a carbon tax at a fixed cost per tonne, of A$23 (US$ 24.11), which will rise 2.5% each year until 2015, when the permits will be tradable on the market. The legislation will affect 500 companies that have high GHG emissions who will have to purchase a permit for every tonne of carbon dioxide equivalents emitted.

How will this impact on Australian mining?

Well the key thing to note here is that carbon emissions trading schemes and tax come into force at the point of emission. Thus while mining will have some emissions, the produce coal is not taxed unless it is burned. Interestingly, the Carbon Tracker Coal Report highlights that Australia export three quarters of their supply abroad. So the actual impact of a carbon tax in Australia is perhaps not as severe as one might think.

Chinese Demand for Coal

The Carbon Tracker Report does not give precise figures on how much of this is exported to China, but one may presume that this would represent a significant portion of the export market. So the coal and the emissions are generated outside the west and one may presume a significant proportion in China.

Currently there is no carbon tax in China. But China are considering a carbon tax. This is good news you might think. And yes it is a step forward for the world - but the rate isn't - 10 yuan per tonne (or US$1.58 per tonne). This compares to the Australian carbon tax which is roughly fifteen times higher! So investors in London can get good dividends and the Australian government can maintain high employment from digging up a product, which if burned in Australia, or London is potentially very costly. 

How Capital Markets laugh in the face of emissions

The money to dig out coal is being raised in London, where we are part of the EU carbon emissions trading scheme. This money is being spent in Australia where their government has just introduced a very progressive carbon tax. The coal is dug up and exported to China where it is burned. In China there is currently no carbon tax and if introduced will have minimal financial impact.

So UK and Australian politicians can introduce progressive seemingly world saving policies and look holier than thou, while protecting jobs and blame China and Asia for not dealing with the problem of emissions. The Carbon Tracker Report highlights that we are all complicit in Chinese carbon emissions and that capital markets currently work in such a way as to make destructive climate change all but inevitable.