The introduction of the European emissions trading system, from January 1 next year, could mean a major blow for local coal producers, who currently supply 80% of their export coal to Europe Xavier Prevost, chief mineral economist: coal and hydrocarbons at the Minerals Bureau, told Mining Weekly Online yesterday that countries not applying clean-coal technology could suffer penalties in the form of carbon taxes or not be allowed to supply coal to the European Community at all.
The European demand for high-calorific value and low-sulphur and low-nitrous-oxide coals means that it will carry a premium, meaning that, in future, there will be three elements to coal pricing in Europe - the FOB price; the freight and the CO2 price in Euros.
The problem for the South African coal industry, said Prevost, is that very little has been done in the country in terms of clean-coal technology development, which means that, even if large invests are made, it is unlikely that such technology will be readily available in time.
However, this also has implications for other coal-dependent sectors in South Africa, as domestic coal prices will surge if the industry loses the European market.
Currently, the majority of local coal producers' revenue is generated from high export prices, which, in turn, is used to subsidise coal produced for domestic use. Thus consumers, such as Eskom, are able to obtain coal at competitive prices, Prevost argued.
“Local coal prices will have to increase drastically if we can longer export - in fact, we could lose the whole industry if there is not enough revenue to sustain it. And, since the coal industry is not isolated, we will see a large impact on various other sectors,” he stated.
In 2002, South African coal exports generated income of R20-billion, while local sales totalled about R13-billion. While 2003 figures were distorted by the rapidly-strengthening rand, Prevost expects that this years earnings will again reflect the robust market conditions.
At this stage, it is not known how the new European regulations will be implemented - whether they will be phased in or introduced all at once.
“We will first have to see what the European Union parliament says, then we will know how much time is needed,” Prevost commented.
Speaking at the McCloskey European Coal Outlook Conference 2004, in France on Monday, Cargill trader Jonathan Moser speculated that, following the introduction of the regulations, buyers would most likely be able to take the pain early on in the emissions year by buying low-sulphur coals, such as Russian or Indonesian, and buying higher-sulphur coals in the second half, so as to stretch out their emissions allowances throughout the year.