pulp mill
3 Feb 2009
There's No Money In Pulp
Despite being an environmental disaster, the Gunns pulp mill was at least supposed to make lots of money for Tasmania. But it turns out it won't even do that
With Gunns putting themselves under the financial spotlight by potentially misleading the Australian Stock Exchange, now is a good time to have another look at the economics of the proposed pulp mill.
As the global financial crisis begins to bite in what commentators are quaintly calling the "real" economy, any big project that promises to create jobs might, on the face of it, be a shoo-in. But it’s not hard to see why the majority of Tasmanians oppose Gunns’ pulp mill when it offers only illusory new jobs to Tasmanians while jeopardising our $3 billion tourism industry and our priceless environment.
If anything, it is at difficult times like these that we most need to do proper cost-benefit analyses of any proposals. Instead of simply promoting the supposed benefits of a project, as Gunns is doing, we need to weigh those benefits against not only the direct costs we will incur by going ahead but also the lost opportunity costs — what else could we be doing that would be more beneficial to more people?
The Greens have promoted this kind of long-term, strategic thinking since our inception in Tasmania almost 40 years ago as the United Tasmania Group. While this approach is finally gaining a great deal of support globally, with major players from Deutsche Bank to President Obama talking about a "Green New Deal", it seems that the idea is still struggling in my home state.
There have been plenty of warnings from economists, businesspeople and concerned locals that the claimed benefits of the Gunns pulp mill need to be weighed against the jobs that it threatens in other industries. Further, we need to know about the economic risks to Tasmania if world pulp prices decline, as resource stocks around the world are already doing. Despite these warnings, the negative impacts of such a mill on agriculture, vineyards, tourism and fishing industry jobs have still not been assessed by Commonwealth or Tasmanian governments.
In 2007, the Tasmanian Business Roundtable for Sustainable Development commissioned a team of economists to study the economic claims made by Gunns and the impact the project will have on the state’s economy. Their report, Sustainable Development in Tasmania: Is the proposed pulp mill sustainable?, found that the $834 million tax contribution over the life of the project — shown in the Gunns benefits analysis — is entirely cancelled out by the $847.3 million in subsidies provided to the project and conveniently left out of Gunns’ analysis.
There were other costs that the report included that Gunns chose to leave out. One example is the cost to the Tasmanian economy of converting agricultural land to plantation to supply the pulp mill, expected to be around $403 million.
Other significant costs concern the risks associated with the operation of a mill of this kind, and the dollar value put on them. They include the risk to Tasmania’s fishing industry due to dioxin contamination from pulp mill effluent (quantified in a medium risk scenario at $693.5 million and 700 job losses over the life of the project), the risk of respiratory disease caused by the emissions from the proposed mill ($350 million), and the huge risk to Tasmania’s tourism industry. This last one is probably the biggest, and used research carried out by the Tasmanian Tourism Industry Council. The medium risk scenario quantified that cost at $1.1 billion — and 1044 jobs — over the life of the Gunns project.
Add the health and commercial risks to the costs and subsidies associated with the mill and these economists put Tasmania $3.3 billion in the red and worse off by 1400 jobs if the mill goes ahead.
In terms of opportunity costs, Gunns has been given the right to use 40 billion litres of cheap water per year, taking that precious resource away from where it is desperately needed. Initially the mill will use 26 billion litres of fresh water per year, more than Launceston, the West Tamar, George Town and the Meander Valley combined. Under pricing arrangements, Hydro Tasmania will charge Gunns approximately $24 per megalitre, making it much cheaper than irrigation for many Tasmanian farmers. With Tasmania getting drier, is a pulp mill really a higher priority for water than food production?
The wood supply agreement Gunns has secured with the Tasmanian Government and approved by the Rudd Government is a disaster for the state. Gunns are permitted to access Tasmania’s native forests as mill feedstock for 30 years, but — in an extraordinary deal — the price Gunns will pay in royalties to the Tasmanian community is directly linked to the global price of pulp. This means that while Gunns can insulate its profit margins from collapsing global prices, the Tasmanian community will get meagre financial returns from its forests, to the point of almost paying Gunns to take them away.
This, at a time when the rest of the world is rapidly recognising the importance of native forests as carbon stores in the battle against catastrophic climate change. There is a huge financial, biodiversity and climate opportunity cost in seeing Tasmania’s forests destroyed for what turns out to be meagre financial return at best.
Putting the mill’s detrimental effects on the wider economy aside for a moment, even the promised jobs at the mill itself need to be looked at a bit more closely. During construction, many of those jobs would be blow-in jobs as skilled teams fly in from overseas.
Later, in its operational phase, this mill would be run from a computer centre in the plant, with just 100 positions for each of three shifts. Many of these jobs would be for highly skilled shift employees, flying in and out from the mainland, as is already the case in so many large industrial and mining projects. Here again, the real picture of the mill looks nothing like the development bonanza its supporters would have people believe.
Building a polluting pulp mill in a precious environment — and spending hundreds of millions of taxpayers’ dollars propping it up — will shut off better options for clean, green and clever development and real jobs for Tasmanians in the north. We should be focussing our jobs, our resources and our investment dollars on the industries that will give Tasmania strength and resilience in the 21st century global economy — clean produce, wind farms and eco-tourism are only the beginning.
With Gunns’ chances of securing finance in the same doldrums that are infecting so much of the global economy, now would be the time to put this sorry story behind us and get Tasmania moving into the future again.
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Hear, hear.
Any company that gets government subsidies should not be able to hide behind ‘commercial in confidence’. Without that ability the true cost (and the lies) will be available for all to see.
This is the opposite of what real business analysts are saying. Still, such things have never stopped Christine Milne saying what she wants to say, and in a voice like an angle grinder!
The real story of Tasmania’s forests is that the total amount of biomass represented by living trees in Tasmania is actually increasing, and this is despite the total tonnage being harvested, for all purposes, (woodchips, sawlogs, special timbers, and firewood)of about five million tonnes. This is due to most of the existing forest growing and adding bulk, together with harvested forest areas being re-generated, and redundant agricultural land being turned back in to forest as plantations. So there you have it, despite the rate of harvet, a net increase in biomass.
What the pulp mill will do is divert some of what would otherwise be exported as woodchips into a higher level of on-shore processing and value-adding, after which it will then be exported for a higher rate of income to the state and the country. Do you see a problem with that?
It is a bit under two years to the next election, and Christine Milne’s seat will be contested, and she continues to cry wolf about climate change in something approaching a moderate to high level scream. It is hard to work out whether she has ramped issues up too early, or whether the screaming is a constant state. Gee, I hope not. I don’t know about anyone else, but I am sick of it already. The rest of the current cycle is going to be an endurance test!
“…real business analysts…” - source please
“…divert some of what would otherwise be exported as woodchips…” - quantify and source please.
Woodworker is at it again spreading the Gunns spin. Either he just doesn’t do his research or he knows what he promulgates is false. Either way he is a totally unreliable source and as such is best ignored.
“What the pulp mill will do is divert some of what would otherwise be exported as woodchips”
No - this is totally false as has been proved by looking at Gunns’ OWN figures. The woodchips for the mill are IN ADDITION to that already exported. The total amount of trees woodchipped in Tasmania will INCREASE if the mill proceeds.
We can but all hope that the World Economic Crisis lasts long enough and is deep enough to destroy any thought of this abomination Mill forever.
But perhaps we need a new Federal Environment Minister, one who can take his job description seriously (for more reasons than one!), and a total clean-out of the Government and Liberal Opposition benches in Tasmania.
For far too long Gunns has OWNED the Tasmanian government, whichever major Party is in Power. And the Timber Workers unions and the Tasmanian Labor Government have far too much sway over the Rudd Government.
Vote Green! Dazza.
Independent economic studies by the State Government, Allen’s Consulting and ITS Global have confirmed that the Tasmanian Pulp mill will be an economic and environmental win fall for Tasmania.
It seems a pretty simple economic exercise to analyse turning four tonne of woodchip currently being exported for about $340, by value adding in a modern mill using the latest environment friendly technology and sell the pulp made for about $800.
So it is disappointing that the major plank of Senator Milne’s claims appears to be an economic study for the Tasmanian Business Roundtable for Sustainable Development.
Anyone close to the debate on the pulp mill would know that this group is not independent but a “campaign” by the Launceston Environment Centre (LEC), and that the LEC was the author of the report with assistance from an economist with a strong track record with the green movement. Wells Economic Analysis, its principal also works at the University, has consulted for the Wilderness society.
The LEC was forced to publish the model used by Wells, and it was immediately revealed it relied on data from Naomi Edwards. She is also known as Dolly Putin, and is a part time fund raiser for Greens Senator Brown.
So hardly independent, but there is more shocks, when you correct the model inputs in the Wells spreadsheet to current prices and exchange rates the pulp mill is a winner with a as built Net Present Value far exceeding the construction cost. Claims of subsidies are also exposed, such as the taxation treatment of MIS schemes Australia wide, and the nonsense claims exposed as the Hydro is selling at commercial rates just 1% of the water allocated to its Trevallyn power station to provided untreated water to the mill.
This mill contrary to claims by this article will be a major economic contributor for the next thirty years. It will operate under strict environmental controls so as to have no adverse impact on marine environment, air pollution, and as it will use only plantation and regrowth timber it will have no impact on old growth forest or high quality wilderness.
As usual woodworker, you fill the columns with useless facts. Tasmania’s forest are not just biomass, they are living, bio-diverse organisms, which not only provide oxygen (some of us have become used to breathing) and store carbon, they also provide sustainable work.
Eco tourism is one of the fastest growing industries on earth and the 3 billion figure Christine mentioned will likely double in a few years if logging for wood chip stops.
With major industrial polluters filling our atmosphere and worming our planet, we actually do need these forests to stay in the ground. Our cold climate rain forests store around 5 times the carbon of those in Indonesia, so for every hectare we chop down here it is worth 5 hectares overseas, a point lost on Kevin Rudd it would seem.
There are so many wasted opportunities in Tasmania and unfortunately Tasmanians will be left behind. There are new sustainable industries springing up around the globe, forced into existence by carbon taxing. Instead of continuing down the same old log track to nowhere, we should be embracing change and enjoying prosperity for all Tasmanians, not just a few.
I thought it was a well researched and informative article, as usual Christine and more believable than the spin put out by industrial analysts.
David Leigh