Why Grattan Insitute is urging the NSW Government to use more of the royalties it earns from coal to help the Hunter diversify

The rolling green hills of New England and wide skies of the Liverpool Plains give way to a view of coal trains. Endlessly long, slow, brown-ish grey wagons, piled high with black coal destined for power stations and export terminals.

But soon, these trains will be fewer, and eventually they will disappear. Coal-fired electricity in the Hunter is on its way out. Liddell power station at Muswellbrook will start closing this year, Bayswater is scheduled to close in 2035. Eraring power station at Lake Macquarie will close in 2025, Vales Point in 2029.

Coal mining won't end because the Hunter runs out of coal; it will end because there are no buyers. Higher world coal prices resulting from the Ukraine war will be temporary. Those overseas who buy Hunter coal are on the same journey, just a few stops behind.

As the world moves away from fossil fuels to save us from the worst effects of climate change, Australia's export customers will switch their electricity from coal to renewables and gas. In a sign that this might happen sooner than predicted, BHP has said it will close Mt Arthur mine 15 years early.

Metallurgical coal, for steelmaking, may hold out a little longer, but, ultimately, steel-making plants will switch to cleaner fuels and processes too.

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But this doesn't mean the end of coal-mining towns such as Singleton, Muswellbrook, Aberdeen, and Greta, or for towns further down the valley such as Hexham and Tomago that rely on heavy industry.

It means they need a plan - and we can look to the past to see what that plan might look like.

When BHP closed the Newcastle steelworks in 1999, governments, unions, companies, and the community rallied round to build a more diverse economy. The Honeysuckle development transformed a derelict industrial site. Reskilling and employment transition programs helped steelworkers find jobs. The NSW Government established an economic development strategy and a dedicated office to implement it. The Federal Government pledged funds to help establish new businesses.

It wasn't perfect. While overall unemployment remained steady, there were not as many semi-skilled, well-paid, permanent, full-time jobs as before. Many of the promised redevelopments - like the Newcastle container port - did not happen.

A major lesson from Newcastle is that most of the successful ideas that led to enduring change came from outside government. The people who lived in Newcastle and knew it intimately had the best sense of what would work and what wouldn't. Another lesson was that transformation takes a long time, and sustaining enthusiasm can be hard.

Other regions in Australia are also starting their journeys away from coal. The Latrobe Valley in Victoria and the Collie region in WA both face coal power station closures this decade. The Mackay region in Queensland will be on a similar track soon. What we know from the Newcastle, Latrobe Valley, and Collie experiences is that it's best to start this journey early. Governments need to support, not lead. They can bring the chequebook and regulations, but the community needs to bring the ideas.

In our report, The next industrial revolution, Grattan Institute calls on the NSW Government to establish a regional transition authority for the Hunter. It could be modelled on the Latrobe Valley Authority, which is already working in that community on everything from new economic development to financial planning and retraining. It should be run by people in the Hunter who know the region's strengths and weaknesses. And it should build on the lessons of Newcastle's move away from steel.

The Hunter has many strengths it can build on. The Singleton local government area has strong economic fundamentals, an educated and skilled workforce, and is in the top 10 per cent of Australian LGAs for innovation. Muswellbrook is a surprisingly strong performer in technology readiness and innovation too.

Where both regions have work to do is in building more sophisticated and dynamic businesses.

This will take money, as well as hard work. We recommend that, for as long as coal mining lasts, the NSW Government use more of the royalties it earns from coal into helping the Hunter to diversify its economy. Twenty-five million a year from the Royalties for Rejuvenation program for the Hunter is a good start - but this is only about 2 per cent of the $1.5 billion in coal royalties collected in 2019-20.

The people of the Hunter can take charge of their future. They can build industries and communities that thrive in a net-zero world.

It's a long journey, but it will be worth it.

The train to net-zero is leaving the station.

Is the NSW Government on board?

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