Rio coal unit eyes expansion, frets over climate

By James Regan

SYDNEY, April 18 (Reuters) - Coal & Allied Industries Ltd (CNA.AX), a unit of Rio Tinto Ltd/Plc (RIO.AX), said on Friday it was looking at the potential to double in size over the next seven years at a cost of $5 billion, but was worried about the extra greenhouse gas emissions such a move would generate.

The expansion would create 6,000 direct jobs in eastern Australia's Hunter Valley region, where the company runs collieries feeding power generating plants and steel mills, and a further 18,000 jobs indirectly, Chairman Chris Renwick told the annual general meeting in Brisbane.

Despite a growing market and surging prices for coal, Renwick said an expansion would increase greenhouse gas emissions, which Australia has promised to cut under the Kyoto Protocol.

"With our future plans to potentially more than double our current rate of production, this poses a real quandary," he said.

But he said coal would play an ongoing role in the global energy mix and is likely to underpin global electricity generation for many years to come.

"Exiting the market would achieve nothing. We would rather be an active industry participant that is ensuring our development is responsible," he said, adding that he believed advances in technology will enable coal to retain its relevance in a carbon-constrained world.

Australia is the world's largest coal exporter.

Australia Prime Minister Kevin Rudd has made climate change one of his key priorities since taking office in November. His first act was to sign the Kyoto Protocol on climate change. Greenpeace spokesman Steve Shallhorn said it was unrealistic to think a doubling of Coal & Allied's production would not impede substantially efforts to lower emissions.

"There's no way by doubling capacity that we can cut greenhouse gas emissions," he said. "The coal companies are going to have to get used to the idea that they are going to have to produce less coal not more coal."

Renwick said Coal & Allied spent $122 million in 2007 on capital improvements down by $26 million from 2006.

He said spending was scaled back because of reductions in port allocation for shipments of coal from eastern Australia meant production had to be curtailed.

"In response, we took a number of steps to match production and costs with port allocations, " Renwick said.

This included cutting 250 full time contractor jobs during the year, he said.

Coal & Allied's 2008 production was expected to remain broadly in line with 2007

Coal & Allied is 75.6 percent owned by Rio Tinto, which is fighting a takeover attempt by larger rival BHP Billiton Ltd/Plc (BHP.AX)(BLT.L). (Editing by Jonathan Standing)