It’s not clear whether Adani will win its battle to build its enormous new coal mine. But what is clear is that the coal industry, and the political right, have already lost the war. The enormous subsidies required to make the Adani mine “commercial” have killed once and for all the myth that coal mining is driven by market forces and is a major contributor to government revenue. At the same time Chevron is squealing at the thought of paying income tax, Adani is demanding it gets free coal. That’s 10 years’ worth of expensive mining PR down the drain right there.

[This piece was first published by the Australian Financial Review – here]

Minister Canavan’s clumsy handling of the resource portfolio has only made things worse. In bestowing his support for subsidising Adani on the basis that every other coal basin in Australia was heavily subsidised (The Australian Financial Review, May 24, ‘Mining Success Built on Taxpayer Support’) he has finally belled the cat. In one fell swoop he has undone the claim that the coal industry is a major contributor to the budget bottom line, undermined the criticism that renewable energy shouldn’t be subsidised, and he has reopened the case for a mining super profits tax to help recoup the community’s contribution. Well played minister, well played.

There is no doubt that Australian taxpayers have spent tens of billions of dollars building the railway lines, coal loaders and other infrastructure for the coal industry. But for a minister to argue that because we have spent so much in the past it makes sense to spend more in the future beggars belief. And when the minister in question is a trained economist who once worked for the Productivity Commission, the economic rationalists who once supported the Coalition must hang their head in despair.

If the minister wanted to build a case for taxpayers investing $1 billion in new coal infrastructure he could start by spelling out exactly what the budgetary cost, and budgetary return, of previous “investments” have been. Maybe because previous resource ministers, and the Minerals Council of Australia, have spent years denying such support existed it is hard for him to place his hands on any reliable data.

But as all economists know, past performance is no indicator of future performance. Even if the tens of billions in previous subsidies to the coal industry have all been repaid, with interest, that’s not evidence that spending another billion of someone else’s money is a good idea. Minister Canavan has highlighted that the Rudd Labor government invested hundreds of millions of dollars in the Hunter Valley coal transport network, but he fails to mention that the world coal market was growing rapidly at the time.

An economic analysis of the public benefits of putting $1 billion into a railway line that private lenders won’t touch should start with a comparison of all of the other things that the $1 billion could be spent on. If the sole objective of the spending was to “create jobs” in regional Queensland, then the starting point would be to evaluate all of the “job creating” projects to see which created the most “jobs per dollar”. Perhaps the minister shies away from such analysis given the capital-intensive nature of mining and Adani’s commitment to automate the mine “from pit to port”.

World coal demand grew steadily for 50 years and has flatlined for the past four. Whether the taxpayer should have underwritten the growth of the coal industry is debatable, but in the past there was no real risk that the taxpayer-funded infrastructure would never be used. But today even the coal industry admits that expansion of exports from the Galilee will simply lower the market share, and market price, for existing coal miners. Indeed, it will also push down the royalties paid by existing mines to the Queensland and NSW governments.

The desperation of the Coalition to use public money to “pick winners” brings an end to the decades-long pretence that conservatives in Australia believed that low taxes, level playing fields and small governments were all that was required to create “jobs and growth”.

The confusion that reigns since the weekend announcement from the Queensland government that “NAIF funding needs to be between the federal government and Adani” just serves to highlight how politically toxic subsidies to the coal industry are becoming.

Richard Denniss is the chief economist for The Australia Institute @RDNS_TAI

AFR Contributor