NSW relies too heavily on coal reserves.

The New South Wales (NSW) government has introduced a reservation policy for coal, requiring a certain portion of coal produced in the state to be sold within the state. Taking effect on April 1st, this policy is the latest in a string of economically misguided decisions from the supposedly centre-right government. It was an inevitable outcome of the federal government’s price caps on the coal industry late last year.

When the international price of energy commodities increased due to post-COVID rebound and an energy-hungry Europe, domestic prices followed. To combat this, the federal government announced a wholesale price cap for coal, meaning producers were not permitted to sell above $125 per tonne (US$85). This policy can only ever exacerbate a supply problem, and must be balanced by another policy – reservation – which forces producers to sell domestically what they could otherwise sell internationally.

The government now has to decide which producers are obliged to reserve which quantities, introducing an extra layer of complexity. The various mines have different grades of coal, different physical proximity to infrastructures, and different responses to the price caps. The industry can normally solve these issues through natural market forces and careful business planning, but now the government has come in with reservation percentages.

The NSW government has missed many exits in the rear-view mirror, leading to this policy. If they had allowed the economy to function correctly, the high demand would have led to high prices, allowing coal exporters to make “windfall profits” and reinvest in more coal production. Instead, the government has interfered, introducing windfall taxes, capping revenue, blocking projects, and using up resources on alternatives such as renewables, batteries, and electric vehicles.

The coal industry is struggling to resource the activity needed to boost production, and is seeing a slump in export volumes compared to pre-pandemic levels. The NSW government’s economically misguided decisions have made it difficult for the industry to recover and invest. Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.