State-owned coal miner Solid Energy says its plans to convert low-energy lignite coal reserves to fertiliser and diesel would be profitable already today, even without being given free carbon credits to cover the huge increase in greenhouse gas emissions they would create.

Chief executive Don Elder told the Commerce select committee hearing that its proposal to make urea, currently imported to New Zealand as a fertiliser, would be "cash positive" to the tune of $1.5 billion a year at 2008 urea prices, while converting lignite to diesel would "double those numbers."

"Economically, it's a no-brainer," said Elder, but technologies to capture, store or neutralise greenhouse gases released by the conversion process meant they could not yet be advanced.

Solid Energy's calculations were based on the company receiving no "free allocations" of carbon emissions units, as have been granted to existing major emitting industries.

Asked whether that meant Solid Energy would not seek free allocations, Elder told BusinessDesk after the hearings: "That's a different question" and declined to comment further.

He told the select committee the company was committed to creating a "net positive" impact on the New Zealand environment, despite mining coal, by implementing a rigorous sustainability programme that balances commercial, environmental, social and workplace measures and has been in place since 2003.

The Parliamentary Commissioner for the Environment, Jan Wright, was highly critical of Solid Energy's lignite conversion plans, issuing a report before Christmas that argued against granting free carbon credits to new heavy-emitting industries, and particularly criticised the carbon intensity of converting lignite to diesel.

At Solid Energy's projected production rate of 35,000 barrels of diesel per day and a carbon cost of $50 per tonne, the cost to New Zealand taxpayers through the ETS would be almost $275 million a year, Wright said. If plans for two such plants eventuated, the cost would double and could represent an indefinite taxpayer subsidy.

The combination of its existing coal mining and planned lignite, underground coal gasification, coal seam gas could see Solid Energy producing the equivalent of one-third of New Zealand's energy needs by 2020, said Elder. Gross carbon emissions from that activity could be between 10 million and 20 million tonnes of carbon dioxide-equivalent annually. "It's a very large number," he said.

Green MP Kennedy Graham questioned whether Solid Energy's definition of sustainability within its own business was compatible with a definition of "sustainability for humanity."

Under questioning on underground mine safety, Elder said the company had made great strides in reducing minor lost-time injury accidents, but it recognised that progress on that front did not necessarily translate to a lower likelihood of catastrophic events causing loss of life.

"If you only focus on small accident, you remain exposed to a major event. It's a different level of risk, and that's where we're moving our focus."

The company had already spent time examining world's best practice in underground mines in the state of Queensland, which had upped its game after a series of mine explosions and fatalities in the 1970's and 1980's.

Solid Energy strongly supported a beefed up, independent mine safety inspectorate service for New Zealand, and expected this to be one of the subjects covered in the Royal Commission into last year's Pike River underground coal mine disaster, in which 29 men died.

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