New South Wales (NSW) plans to raise coal royalties in an effort to generate an additional $2.7 billion (US$1.7 billion) for its budget over a four-year period starting in 2024. The increase of 2.6 percent in coal royalties, effective July 1, 2024, will replace the emergency domestic coal cap and reservation measures that were implemented in December 2022. The NSW government aims to offset a $1.3 billion decrease in royalties revenue in the upcoming budget and use the funds to rebuild essential services and provide cost-of-living relief to families in the state. NSW Treasurer Daniel Mookhey stated on Sept. 6 that these changes are necessary to modernize the state’s coal royalties.
Upon implementation, open-cut, underground, and deep-underground coal royalties will rise to 10.8 percent, 9.8 percent, and 8.8 percent, respectively. The NSW government highlighted that coal royalty rates have not been increased since January 2009 and that international coal prices have already experienced a significant increase, reaching well above $500 per tonne in late 2022 during Russia-Ukraine tensions. The government emphasized that international coal prices consistently trade above $200 per tonne.
Finance and Natural Resources Minister Courtney Houssos stated that these changes will take effect on July 1, 2024, allowing the industry ample time to adjust and honoring the Minns Labor Government’s commitment not to consider royalty changes while emergency measures were in place. The government engaged in extensive consultations with mining companies, industry groups, and trading partners to strike the right balance.
However, the increase in royalties has raised concerns in the sector. The NSW Minerals Council warned that this move would place a heavier burden on coal producers who are already facing high operating costs due to the introduction of the safeguard mechanism by the Australian government. The safeguard mechanism aims to reduce emissions in the country’s largest industrial facilities to achieve net-zero emissions by 2050. NSW Minerals Council CEO Stephen Galilee acknowledged the coal sector’s role in regards to royalties but raised concerns about the rate increases, stating that NSW coal producers will pay at least 30 percent more in royalties than under the existing arrangements, regardless of the commodity price cycle.
Galilee expressed support for the abolition of the price cap, noting that it did not effectively reduce power prices. He deemed the associated reservation measures unnecessary as well. The mining industry continues to face challenges in Australia, with Queensland Treasurer Cameron Dick threatening to cancel BHP’s coal mine leases after the mining giant announced it would no longer invest in further growth in the state. BHP cited Queensland’s high coal taxing regime as a reason for its decision, which negatively impacts its investment economics and increases sovereign risk. However, BHP remains committed to sustaining and optimizing its existing operations in the state.