David Fickling
It was once said that Australia was “built on the backs of sheep”—a recognition that wool has played an important role in its economic growth. These days you could say it’s floating in a lake of diesel.
No major economy uses much oil. Consumption amounts to about 7.7 barrels per person, per year, enough to fill the tank of a Ford F-150 car nine times. That’s about 80 percent higher than the US level, and eight times higher than China.
As global oil supplies began to rise as a result of the Strait of Hormuz crisis, prices rose more than 50 percent within weeks. The shortages are looming.
Waste companies have warned that waste collection could be canceled if there is a shortage of trucks. Hundreds of gas stations are out of at least one type of fuel. Farms have delayed planting because their tractors cannot be refilled. Truck drivers are still stuck at outdoor filling stations. Charter fishing vessels operating out of Sydney Harbor are facing tight mouths.
The government denies giving up food, but has eased security measures to get some supplies from overseas. The market looks worryingly tight.
For all of this, you can blame decades of neglect and misguided subsidies. Other countries should not think that they have no protection. Fuel shortages are already prompting talks of emergencies in the Philippines and South Korea, while the effects in Australia could affect global food and raw material supplies.
Things would have been a lot better if successive governments had not spent years encouraging the abuse of money.
Some of these diesel dependencies are almost avoidable. Mines are a fierce consumer of fuel. It’s a powerful power source for power-hungry trucks and machines used on remote job sites. Farmers use it to power their harvesters, tractors and pumps for similar reasons.
Part of this depends on geography. Australia has a population no larger than that of Florida, spread over a continent roughly the size of the US.
As a result, the advanced trucking industry hauls goods on two-, three- or even four-way trains between major cities that are rarely 1000 miles apart.
Bad policy has made the problem worse than it should have been. Despite some of the world’s largest reserves of coal and natural gas, Australia is a small producer of oil, and relies on imports from Asia for about 90 percent of its diesel.
Stockpiles are currently limited to 30 days only. That is the lowest among members of the International Energy Agency, which requires at least 90 days of supply. With the Strait of Hormuz closed and major exporters China, Japan and South Korea cutting imports to prevent domestic shortages, that has left Australia’s safety net looking decidedly bleak.
Things would have been a lot better if successive governments had not spent years encouraging the abuse of money. Industrial users receive tax credits to cover the cost of their diesel consumption, a program that has grown into one of the biggest budget draws. The federal government will spend $10.8 billion on diesel subsidies in the current fiscal year, more money than the military or navy, and about the same amount spent on public education.
That effect serves as a financial incentive to decarbonise efforts. Other countries are making progress. At Chile’s Collahuasi mine, one of the world’s largest copper mines, overhead lines have been installed to allow electric waste trucks to the processing plant. At Vale’s S11D, Brazil, part of the world’s largest steel plant, electric machines crush ore in the pit and send it to transport, cutting emissions by three quarters and costs by 15 percent. At the Macassa gold mine in Canada, 80 percent of the ore is mined by electric machines, reducing the high cost of ventilating underground tunnels.
In Indian farms, 13 percent of irrigation pumps use solar energy. In China, where sales of battery-electric commercial vehicles have been on the rise lately, more than half of the heavy trucks bought in December came with a plug.
In Australia, such developments sound like science fiction. Battery powered trucks are still being experimented with, and solar pumps were relatively unknown until a few years ago. BHP, whose diesel consumption accounts for 63 per cent of its operational output, plans to phase out most of its consumption to reduce reliance on diesel by the 2030s. This is what happens when the government puts its finger on the scale to support fossil fuels.
Iron ore miner Fortescue, one of the biggest beneficiaries of the diesel rebate and one of Australia’s most aggressive decarbonisers, has called for the measure to be scrapped for all but the smallest businesses. Eliminating the tax break would increase the savings on electricity mining assets by 50 percent, according to Fortescue. The billions of dollars the government would save could be put back into building the transmission, distribution, charging and battery swapping infrastructure needed to power mine sites and long-haul truck routes.
It should come as no surprise to Australia to see how damaged it is with its reliance on dirty, expensive, unsafe diesel. If the current alarm helps change that short-sightedness, it couldn’t have come a moment too soon.
David Fickling is a Bloomberg Opinion columnist on climate change and energy. He previously worked for Bloomberg News, the Wall Street Journal and the Financial Times.
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