D B S −０７−０３

Is the Land Rehabilitation Project in Australia
Using Coal-fired By-products
Sustainable and Profitable?
– A Feasibility Analysis with System Dynamics∗–
Kaoru Yamaguchi †Yoshitaka Nitta ‡Takahisa Yokoyama §Takayoshi Kato ¶Abstract
The encroachment of sodicity, salinity and acidity on Australian land
is of national concern. The land rehabilitation project dubbed COALA(COal industry by-product Applied to LAnd rehabilitation) aims to assess the feasibility of enhancing greenhouse gas reduction by sodic / acidic
land reclamation in Australian condition using coal-fired power plant byproducts such as Flue Gas Desulphurisation (FGD) gypsum or coal-ash
delivered fertilizer. The technical feasibility of the project has been carried out though the field trial for sodic soils and laboratory pot trail foracidic soils successfully. In this paper the sustainability and economic
feasibility of the COALA Project are discussed using system dynamics
business modeling method. The major finding is the COALA project is
profitable under sustainable forest management.

1

Introduction

Two of the authors, Nitta and Yokoyama, have been working on the land rehabilitation project in Australia dubbed COALA (COal industry by-product Applied to LAnd rehabilitation). As the project proceeds favorably, they needed∗ This paper will be submitted to the Australia New Zealand Systems Conference(ANZSYS) 2007, Auckland, New Zealand, December 2 - 5, 2007. The research is jointly
supported by the Omron Fund, Doshisha Business School and by the Central Research Institute of the Electric Power Industry, for which we are very thankful. However, views presented
in this paper are only ours and do not reflect those of the institutions we are affiliated with.
† Professor, Ph.D., Doshisha Business School, Kyoto, Japan‡ Central Research Institute of Electric Power Industry, Japan (currently Professor, Ph.D.,
Yokkaichi University, Japan)§ Senior Research Scientist, Dr., Environmental Science Research Laboratory, Central Research Institute of Electric Power Industry, Japan¶ Graduate Student of Global Environmental Studies, Kyoto Univ., Japan (currently, researcher, M.S., Mitsubishi UFJ Research and Consulting Co. Ltd.)1

DBS Discussion Paper Series supported by the OMRON Foundation.DBS

Electric Power Company (EPC)
Hokkaido EPC
Tohoku EPC
Tokyo EPC
Chubu EPC
Hokuriku EPC
Kansai EPC
Chugoku EPC
Shikoku EPC
Kyushu EPC
Okinawa EPC
Electric Power Development Co.

KWh/Year
1.449e+102.3187e+10
5.832e+92.9206e+10
1.5644e+10
4.09e+8
1.9635e+107.377e+91.1677e+104.468 e+95.1133e+10

Table 1: Power Generation by Coal: Data in 2004
to evaluate its economic feasibility to see if it could be really implemented as asustainable business model in Australia jointly with Japan. Upon their request,
the other author, Yamaguchi, was invited to build its system dynamics businessmodel with the modeling assistance by Kato, who was a graduate student of
global environmental studies.
The modeling task gets started in this way as a year-long joint research inthe spring of 2005. Toward the end of the research we had a chance to present
our model to the Environmental Protection Agency, Queensland Governmentof Australia in March 2006. Though the model was written only in Japanese atthat time, out aural presentation turned out to be good enough to attract theirattention. Later on we are asked to write the model in English for the further
examination of the project, which turns out to be the model attached to thecurrent paper.

2

The Issue: Coal-fired Power Plant By-products

There are 10 electric power companies (EPC) which are exclusively located in
10 regions in Japan such as Hokkaido EPC, Tohoku EPC, Tokyo EPC, Chubu
EPC, Hokuriku EPC, Kansai EPC, Chugoku EPC, Shikoku EPC, Kyushu EPC
and Okinawa EPC, and several whole sale electric companies such as ElectricPower Development Company (JPOWER). Table 1 shows their annual electricity generated only by coal in 2004, which constitutes 24% of total electricity
generated in Japan. The coal-fired power generation depends on imported coals,
mainly from Australia, China and Indonesia. For instance, in the year 2004,
63.3% of coals were imported from Australia and 18.7% and 11.6% were from
China and Indonesia, respectively.
Figure 1 illustrates a typical structure of electric generation activities, say,in the Hokkaido Electric Power Company, which simultaneously produces by-2

products such as carbon dioxide (CO2 ), FGD gypsum and coal ash1 .
Figure 2 shows a sub-model for calculating a whole domestic power generation by coals and its by-products as a sum of the above-mentioned 10 electric
power companies (excluding Okinawa EPC) in Japan, though the information
arrows of inflows and outflows from such 10 companies are hidden from themodel to avoid a drawing complexity.
In order to estimate the demand for electricity generated by coal in Japanover the coming half a century from 2006 through 2060, a very conservative
assumption is made in our research such that it increases linearly by 20% in
2030 (or roughly 0.8% annually) and by 30% in 2060 (or about 0.33% annually).
Based on this demand estimation, Figure 3 indicates that Japanese electric
power generated annually by the coal will become 214.3 billion KWh in 2030
and 232.16 billion Kwh in 2060, while her import of coals mainly from Australia
will become 46.93 million tons in 2030 and 50.84 million tons in 2060.
Figure 4 estimates that carbon dioxide of 1.307 billion tons in 2030 and
3.154 billion tons in 2060 will be additionally accumulated to the level of thosein 2006 due to the coal-fired discharges in the air less a smaller amount of natural
fixation. CO2 is not the only coal-fired by-product. Figure 5 calculates that
680,535 tons of FGD gypsum in 2030 and 737,246 tons of FGD gypsum in 2060
will be discharged, while coal ash of 4.693 million tons in 2030 and 5.084 million
tons in 2060 will be produced annually. Where do they go?
Eventually Japan, as isolated islands surrounded by the ocean, will be forced
to deal with the disposal of such accumulating by-products. For instance, inthe year 2000 8.43 million tons of coal ash was produced by industrial sectors
including coal-fired power plants, among which 80% of coal ash was utilised in
cement and concrete, civil engineering, building, agricultural and fishery andother applications, and the rest of which was disposed of as landfill. Meanwhile,
all the FGD gypsum was used in wallboard and in cement manufacture.
In this way the disposal of coal-fired by-products, in particular coal ash, is
the issue Japan is facing and need to be solved in the near future so long as herenergy keeps depending on the imported coals.

1 The words, coal ash and flyash, are equivalently used in this paper3Figure 1: Power Generation and its By-products by Hokkaido Electric Power
Company
4

DemandIndex
Data

Demand ForecastingIndex for Electricity by
Coal

Annual Coal Imports(Hokkaido)

Total Power
Generation by
Coal(Hokkaido)

Coal Consumption per
KWh (Hokkaido)

Coal Inventory(Hokkaido)

Annual Power
Generation by Coal
(Hokkaido)

Power Generation by
Coal in 2004 (Hokkaido)

Annual Coal
Consumption(Hokkaido)

Annual Flyash
Production(Hokkaido)

Flyash Production per unitof Coal Consumtion(Hokkaido)

Annual FGD Gypsum
Discharge (Hokkaido)

Gypsum Discharge per unitof Coal Consumption(Hokkaido)

Annual Exhaust of
Carbon (Hokkaido)

Carbon Exhaust per unit of
Coal Consumption(Hokkaido)

Hokkaido Electric Power Company

Flyash
(Hokkaido)

FGD Gypsum(Hokkaido)

Accumutated
Carbon(Hokkaido)

Annual Flyash
Reduction (Hokkaido)

Domestic Flyash
Disposal (Hokkaido)

Annual FGD Gypsum
Reduction (Hokkaido)

Domestic Gypsum
Disposal (Hokkaido)

Annual Reduction of
Carbon (Hokkaido)

Naturally Fixed Amountof Carbon (Hokkaido)

Flyash Usage Ratio(Hokkaido)

Flyash Exports(Hokkaido)<Annual Use of
Flyash in Japan>

Gypsum Exporting
Ratio (Hokkaido)

FGD Gypsum
Exports (Hokkaido)<Annual Imports ofGypsum>Natural Fixation
Ratio of Carbon

Figure 2: Total Power Generation by Coal and its By-Products in Japan

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Figure 4: Accumulated Carbon Dioxide from Coal Imports
Annual By- pr oduct s : FGD Gyps um and Fl yas h
1 M t on/ Year
6 M t on/ Year
750, 000 t on/ Year
4. 5 M t on/ Year
500, 000 t on/ Year
3 M t on/ Year
250, 000 t on/ Year
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2015

2024

Annual FGD Gyps um Di s char ge : Cur r ent
Annual Fl yas h Pr oduct i on : Cur r ent

2033
2042
Ti me ( Year )

2051

2060
t on/ Yeart on/ Year

Figure 5: By-products of Coal: FGD Gypsum and Flyash
6

3

COALA Project: A Win-Win Solution

3.1

Objectives

Spending his research time mostly on the issue, Nitta one day hit upon the ideathat the coal industry by-products such as FGD gypsum and flyash could be
effectively applied to improve sodic and acid land, specifically in Australia, andif coal-fired by-products in Japan could be applied to it, the solution could be
beneficial both to Japan (a volume consumer of Australian coals) and Australia(exporter of coal).
As a matter of fact, the encroachment of sodicity salinity and acidity on
Australian land is of national concern. An estimated 580,000 hectares havebeen badly affected so far by sodium and 5 more million hectares of land will be
expected to be seriously affected within the next 20 years. Meanwhile, total areaof acidic soils is eight to nine times that of being affected by dryland salinity.
50 million hectares (50% of agricultural land) have surface pH ≤ 5.5 (or below
optimum for extremely acid-sensitive agricultural plants)2 .
The COALA project aims to assess the feasibility of enhancing greenhousegas reduction by sodic/acidic land reclamation in Australia using coal-fired byproducts in Japan such as FGD gypsum, which is obtained by removing sulphur
dioxide in the flue gases, and coal-ash delivered fertilizer. The idea of using FGD
gypsum for reclamation of sodic soils, and their subsequent use for forestry as
carbon sinks has been proposed by Lu and Nitta (1). It has been eventually
expanded to another idea of using coal-ash derived fertilizer for reclamation ofacid land.
The proposal has several attractive features for trading partners of Australia
and Japan. For Japan, shift of fuel from coal to natural gas has been discussed
as one of the options for the reduction of greenhouse gases, which would yet
require the early retirement of existing coal-fired power stations; a very expensive option. Instead, if Japan could gain credits for the additionally createdcarbon sink that is sufficiently enough to fully offset the emission differences
between coal-fired and natural gas-fired power plants, there would be no greenhouse benefit in this fuel switching. In addition Japan could gain some extra
time to attain a balance of energy resources by shifting from coal toward natural
gas and nuclear power as a major energy source.
On the other hand, as a major supplier of some 60% of steam coal usedin Japan, Australia could secure a major export market into the future. There
would also be benefits to the agricultural and forestry sectors in Australia, being
obtained from the reclamation of marginal or unusable land into productive
service. In addition, both countries would gain advantages from the global
environmental benefits of the increased carbon sink.
The aim of the COALA project is to demonstrate under Australian ecological conditions the feasibility of enhanced carbon sink by sodic/ acidic soil
reclamation using coal-fired by-products. FGD gypsum is used for sodic soil
2 This figure was pointed out through personal communications with Prof Roger Swift,
University of Queensland

7

reclamation, while coal-ash delivered fertilizer is used for acidic soil reclamation.

3.2

Soil Reclamation Experiments

The COALA project consists of 2 phases: sodic soils project in which sodic soil
is reclaimed using FGD Gypsum, and acid soil project in which acidic soil isreclaimed using coal-ash delivered fertilizer.
Sodic Soils ProjectThis phase of the project is an international collaboration between Japan andAustralia. Its participants are HEPCO(Hokuriku Electric Company), CRIEPI(Central Research Institute of Electric Power Industry) and the University of
Queensland.
The trial field is located in Darbarala within a salt pan, which has formed in
the Babcock block of the University of Queensland’s Darbarala Farm. Approximately 1,000 Australian native trees were planted such as Casuarina glauca(Swanp Sheoak), Eucalyptus moluccana (Gray box) and Eucalyptus camaldulensis x grandis (Saltgrow). Specifically C. glauca was planted in November
2000, and E. molucanna and E. camaldulensis x grandis were planted in March
2001. The project is detailed in Wearing, Rudolph and Lu (2). Figure 6 is aerial
photos of Darbarala trial field. They convincingly show that a sodic barren landin 2001 has been reclaimed to a growing green forest in 2004.
In this way, the Darbalara field trial has successfully demonstrated that
FGD gypsum (CaSO4 ·2H2 O) produced from coal-fired power plant by-products
could be used for amendment of a badly degraded saline- sodic soils in Australia,
enabling the the sodic land for forestation.
The field trial has attracted wide interest as a showcase of the before andafter benefits for rehabilitation of deteriorated land using FGD gypsum. It
has been featured on TV, radio and in media print, as well as at a numberof international conferences such as COP6 (2000), 9th APCChE Congress and
CHEMECA (2002) and 4th Asia Pacific Conference on Sustainable Energy andEnvironmental Technologies (2003).
Acid Soils ProjectThis phase of the project aiming for acidic land reclamation by coal-ash delivered fertilizer is a research collaboration between CRIEPI and the Universityof Queensland. The objectives of the project is to demonstrate the usefulnessof the flyash fertilisers in ameliorating the acidity of soils by assessing the following; (1) the effect of the flyash-fertilisers on the characteristics of selectedacid soils (ferrosol, pdsol and acid sulphate soil), (2) the ability of the flyashfertilisers to enhance the growth of selected agricultural crops on those soils,and (3) the nature and fate of nutrients and contaminants that are associatedwith the flyash-fertilisers or soils.

8Figure 6: Aerial photos of Darbarala field trial (left 2001, right March 2004)
Figure 7 demonstrates how wheat and corn grow on different acid soils with
5 differentiated application of flyash fertilisers. All soils exhibit enhanced plant
growth with additional increases in nutrients. The podosol showed the greatest
improvement, while the ferrosol showed the least improvement.
In addition, UQ’s laboratory analysis indicated that the flyash-fertiliser
would not be considered a hazardous material under the Hazardous Waste (Regulation of Exports and Imports Act 1989) when assessed using the 4 criteria toassess waste materials and on advice from the Environment Australia (EA). The
project was in this way terminated in August 2006 with the successful results.
The project performance is detailed in Swift and Spark (3).

4Land Rehabilitation in Australia

Sodic-degraded Land
We are now in a position to build a system dynamics model of the COALA
project to see its economic feasibility when it is actually implemented. As
demonstrated in the COALA showcase experiment above, FGD gypsum turned
out to be very effective to reclaim sodic soils for plantation. In our model it
is assumed that every year 1,000 hectare of sodic land is purchased at 2,500
Australian dollars (A$) per hectare and reclaim them for the duration of 25

9Figure 7: Plant Growthyears, starting the year 2006. It is also assumed that 5 tons of FGD gypsum
is applied to reclaim one hectare of purchased sodic soils. Accordingly, 25,000
hectare of sodic lands will be reclaimed in total in 2030 for afforestation, assummarized in Table 2.

Acid-degraded Land
Currently 40 million hectare of land is estimated to be affected by acidity inAustralia. Let us similarly assume that every year 1,000 hectare of sodic landis purchased at A$ 2,500 per hectare and reclaim them for the duration of 25
years, starting the year 2006. It is also assumed that one ton of flyash is needed
to produce 1.1 tons of flyash fertiliser in Japan, and 20 tons of flyash fertilizers
need to be applied to reclaim one hectare of acid land. Accordingly, 25,000
hectare of sodic lands will be reclaimed in total in 2030 for afforestation, assummarized in Table 2.
Figure 8 illustrates the structure of land reclamation processes of both sodic
and acid soils.

10

2006
2007
2008
2009
2010
···
2028
2029
2030
Total

Sodic Soils (ha)
1,000
1,000
1,000
1,000
1,000
···
1,000
1,000
1,000
25,000Acid Soils (ha)
1,000
1,000
1,000
1,000
1,000
···
1,000
1,000
1,000
25,000

Table 2: Land Rehabilitation Plan of 25 Years

5

Sustainable Afforestation

Rotating Forests
Let us now assume that 1,000 trees are planted per hectare on the reclaimed
land, and they are classified into three groups according to their growth stages:that is, seedlings (1-5 years), young trees (6-15 years) an matured trees (16-25
years). It takes 5 years for seedlings to become young trees, and their dying andpruning rate is assumed to be 3 % annually. It takes 10 years for young trees
to become matured trees, and their dying and pruning rate is assumed to be 2
% annually. It takes another 10 years for matured trees to be logged, and theirdying and pruning rate is assumed to be 0.5 % annually.
Furthermore, trees that die or get pruned are to be replanted annually so thata total number of forest trees are constantly maintained. Figure 9 illustrates
a growth structure of afforestation in sodic land, with its rotation period of 25
years. Afforestation of acid land is similarly structured in the model.

11Figure 8: Land Reclamation of Sodic and Acid Soils

12

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13

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Figure 10 shows how planted trees grow annually. Thick blue line indicatesannual number of seedlings plantation, red and green lines show annual growthof young and matured trees, respectively. Meanwhile, dotted line shows a number of matured trees being cut down annually.
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Figure 11 illustrates the number of trees in stock at three stages of growthon the reclaimed sodic land of 25,000 hectare; that is, blue, red and green lines
represent the numbers of seedlings, young trees and matured trees in stock.
Meanwhile, a gray thick line indicates the total number of trees on the reclaimed
sodic land, which will be stabilized with 25 million trees from the year 2031;
that is to say, a complete recycling and sustainable forest will be attained after
25 years of afforestation.

Carbon Credits
We are now in a position to show how many tons of carbons (not CO2 ) areabsorbed annually from the forests on the reclaimed land. For the calculation
we have assumed that a seedling can absorb 0.0065 tons of carbon per year,
while young and matured trees can absorb 0.0061 and 0.0054 tons of carbons,respectively.
Left-hand diagram of Figure 12 indicates that the total amount of carbon
absorbed by the forest is about 300,000 tons per year after the year 2030. Yet
it constitutes only less than 1 % of Japanese annual carbon exhaust caused bycoal-firing as illustrated in the right-hand diagram.

14

Recycl i ng Af f or es t at i on of Sodi c Land
15 M t r ee
30 M t r ee
11. 25 M t r ee
22. 5 M t r ee
7. 5 M t r ee
15 M t r ee
3. 75 M t r ee
7. 5 M t r ee
0 t r ee0 t r ee
2006

2015

2024

2033
2042
Ti me ( Year )

2051

2060

" Seedl i ngs on Sodi c Land ( 1- 5 year s ) " : r un
" Young Tr ees on Sodi c Land ( 6- 15 year s ) " : r un
" Mat ur ed Tr ees on Sodi c Land ( 16- 25 year s ) " : r un
Tot al Number of Tr ees on Sodi c Land : r unt r eet r eet r eet r eeFigure 11: Recycling Afforestation of Sodic Land
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Figure 12: Carbon Absorption and its Ratio to Carbon Exhaust in Japan

6

An Economic Feasibility Analysis

Plantation Costs
Is the COALA project, if jointly implemented by Australia and Japan, sustainable and profitable? To answer these questions we need to perform an economic
feasibility analysis. The analytical method employed in this analysis is basedon a principle of accounting system dynamics developed by Yamaguchi (4).
Let us start with the analysis of costs. Plantation costs of the project consistof (1) cost of producing flyash fertilisers in Japan, (2) transportation costs of
FGD gypsum and fertilisers from Japan to Australia, (3) land establishment
and planting costs, (4) plantation maintenance costs, and (5) logging and shipping costs of forest trees. Table 3 indicates our estimated unit cost of major
plantation costs.
One remark needs to be made on the treatment of the plantation costs. These
costs are not recovered until forest trees are logged and sold out. Therefore,
15

Fertiliser and Transportation
Flyash fertiliser production (per ton)
Surface transportation (per ton)
Domestic transportation (per ton)
Establishment and Planting
Fertilizing cost (her ha)
Seedling price (per tree)
Labor cost per seedling
Plantation Maintenance
Maintenance (per ha)
Logging and shipping
Logging (per tree)$25.00$100.00$45.00$10.00$1.00$2.485$1,000.00$36.00

Table 3: Plantation and Logging Costs (Investment)
until their sales revenues are realized these costs are booked as afforestation
investment and accumulated into forest assets in our balance sheet in Figure 13.
Only when logs are sold out, they are subtracted from the forest assets as costof goods sold.

Sales Revenue
On the other hand, sales revenue of the project consists of three sources; thatis, flyash allowance, sales of carbon credits and logs. For the disposal of flyash
per ton, A$62 are expected to be paid by electric companies in Japan, whichbecome the project revenue. Price of carbon credits is daily fluctuating andhard to predict. In the model we assumed A$18 for carbon per ton. Price oflogs when trees will be logged in 2030 or later is still harder to predict. We
assumed A$60 per cubic meters and a volume of each tree is 3 cubic meters inaverage.
In addition to sales revenue, we could also expect non-operational revenues
such as appreciation of reclaimed land due to the improvement of land quality
and interest receipts if cash income is to be deposited in the future. Figure 14
illustrates the income statement of the project. Income taxes are not brought
into consideration in our model due to the lack of income tax data in Australia(which could be easily fixed in our revised model in the future.)

16

Figure 13: Balance Sheet

17

NPV of C OALA
Project<Purhcase ofLand><Afforestation
Investment><C ash Outflow><Accounts
Receivable
Paid><C ash Inflow>

Net C ash Flow
Deficits<C apital
Funding><Annual Issues of
C OALA Green
Bonds><Sales Revenue><Interest
Receipt>

Discount(Interest) Rate

Net C ash
Flow

C ash &
Deposits

Lnad Appreciation
per haAppreciation of
Reclaimed Land

<AnnualPurchase of
Acid Land>

Price of Landper haPurhcase of Land

Afforestation
Investment<IncomeTaxes>

Reclaimed
Land

ForestAssets<Non-Operational
Expenses>

C ash Outflow<Plantation
C osts><Operating
Expenses><AnnualPurchase of
Sodic Land><Annually Reclaimed Acid
Land>

<Annually Reclaimed
Sodic Land>

Accounts
Receivable Paid
Period of Receipts

Accounts
Receivable

C ash Inflow

A ssets<C ost ofGoods Sold><IncomeTaxes><Non-Operational
Expenses><Operating
Expenses><C ost ofGoods Sold>

Redemption
PeriodAnnual Redemption of
C OALA Green Bonds

Period of Payment

Accounts Payable
Paid

Retained
Earnings<Net C ash Flow
Deficits><Non-Operational Revenues><Sales Revenue>

C apital Funding

Owners' E quity

C apital Stock

Long-Term
Borrowing

Annual Issues of
C OALA Green Bonds

New Issues of
C OALA Green Bonds

Long-Term
Debt

Accounts
PayableL iabilities

Figure 14: Income Statement

18<Annual Imports ofGypsum><Reclaimed Acid
Land>

<Reclaimed Sodic
Land>

Maintenance Cost
per ha<Logging of Matured
Trees on Acid Land>

Unit Cost of
Cutting a Tree

<Plantation on
Acid Land><Plantation on
Sodic Land>

Labor Cost per
Seedling

Seedling Price<Annually Reclaimed
Acid Land>

Fertilizing Cost
per ha<Annually Reclaimed
Sodic Land>

Domestic
Transportation Cost
per TonSurface
Transportation Cost
per Ton<Annual Imports of
Flyash Fertilisers>

Unit Cost of Flyash
Fertiliser Production

Interest Rate on
Securities<Long-Term
Debt>
Interest Expense

Plantation
Maintenance

Logging Costs

Planting Costs

Establishment
Costs

Transportation
Costs

Cost of Producing
Flyash Fertilisers

Plantation Costs
Cost of Goods
Sold

Cost of Logs

<Total Number ofTrees>

Income Taxes

Non-Operational
Expenses

OperatingExpenses<Shipping of Logs
from Acid Land><Shipping of Logs
from Sodic Land><Forrest
Assets>Retained Earnings

NPV of Net
IncomeNon-Operational
Revenues<Appreciation of
Reclaimed Land><Discount(Interest)
Rate><Cash &
Deposits><Discount(Interest) Rate>

Interest Receipt

Sales Revenue

OperatingEarnings

Net Income

Earnings
before Tax

Gross Margin

Sales of Logs

Sales of Carbon
Credits

Flyash Allowance<Income Taxes><Non-Operational
Expenses><Operating
Expenses><Cost of
Goods Sold><Shipping of Logs
from Acid Land><Shipping of Logs from
Sodic Land>

Price of Logs

<Carbon Absorption by
Acid Forrest>

Price of Carbon
Credits<Carbon Absorption by
Sodic Forrest><Annual Use of Flyash for
Fertiliser>

Flyash Disposal
Allowance

Figure 15 shows a breakdown of sales and non-operational revenues in whichflyash allowance (blue line), sales of carbon credits (red line) and appreciationof reclaimed land (green line) have the same scale of 6 million A$, while sales oflogs (thick gray line) and interest receipt (gray line) have a scale of 400 million
A$. As forest trees keep growing they absorb carbon simultaneously, and ourrevenues from carbon credits in red line also keep increasing until it will stabilize
around 5.3 million A$ in 2031 when our forest starts recycling with a constantnumber of total trees.
Meanwhile, sales revenue of logs jumps to 240 million A$ in 2031 and keeps
increasing to 346.7 million A$ in 2055. Compared with this, sales revenue fromcarbon credits is almost negligible against our expectation before the simulationof the model is run.
Br eakdown of Sal es Revenue
6 M A$/ Year
400 M A$/ Year

3 M A$/ Year
200 M A$/ Year00

A$/ Year
A$/ Year
2006

2015

2024

2033
2042
Ti me ( Year )2051

Fl yas h Al l owance : Cur r ent
Sal es of Car bon Cr edi t s : Cur r ent
Appr eci at i on of Recl ai med Land : Cur r ent
Sal es of Logs : Cur r ent
I nt er es t Recei pt : Cur r ent

2060
A$/ Year
A$/ Year
A$/ Year
A$/ Year
A$/ Year

Figure 15: Breakdown of Sales Revenue
Let us further examine net income for the detailed analysis of economic
feasibility. Figure 16 reveals that sales revenue (blue line) is not enough evento cover operating expenses of plantation maintenance, so that net income (redline) becomes negative till 2030, even though cost of goods sold is not subtracted
in the calculation of net income until logs are sold in 2030.
More serious problem for the implementation of the project is the lack of
cash flow (green line) till 2031 as shown in Figure 16. Since we need to keep
spending plantation costs as afforestation investment, a constant flow of cash forthe investment till 2031 is absolutely required. Accordingly, the success of thisproject depends on how we can raise fund to cover the afforestation investment
until our forest gets matured for recycling in 2030.

19

Sal es Revenue and Cas h Fl ow
500 M

A$/ Year

300 M

100 M

- 100 M

- 300 M
2006

2012

2018

2024

2030 2036 2042
Ti me ( Year )

2048

2054

2060

Sal es Revenue : Cur r ent
Net I ncome : Cur r ent
Net Cas h Fl ow Def i ci t s : Cur r ent

Figure 16: Sales Revenue, Net income and Cash Flow

COALA Green Bonds
For financing the afforestation investment of 25 years long, we like to recommendthat the net cash deficits of the project are to be financed by issuing projectbonds, called here the COALA green bonds, whose redemption period is 10
years. Such green bonds, we believe, could be purchased by socially responsible
investors or ecologically conscious investors. However, it could be more favorable, without appealing to such conscientious investors, if the green bonds were
to be attractive in competitive financial markets.
COALA Gr een Bonds
400 M A$/ Year
2 B A$
300 M A$/ Year
1. 5 B A$
200 M A$/ Year
1 B A$
100 M A$/ Year
500 M A$00

A$/ Year
A$
2006

2015

2024

2033
2042
Ti me ( Year )Annual I s s ues of COALA Gr een Bonds : r un3%
New I s s ues of COALA Gr een Bonds : r un3%
Annual Redempt i on of COALA Gr een Bonds : r un3%
" Long- Ter m Debt " : r un3%

2051

2060
A$/ Year
A$/ Year
A$/ YearA$

Figure 17: COALA Green Bonds
Therefore, the question is whether COALA green bonds can be competi20

tive against corporate long-term bonds and government long-term securities infinancial markets. They could become very attractive if we could offer 3% ofyield or interst rate, specifically in Japanese financial markets, since current
yield of Japanese government bonds (10 years) is 1.656%. Figure 17 illustrates
how green bonds of 3% yield are planned to be issued and redeemed. Blue line
indicates the amount of annual issues of the bonds, among which new issues areshown in red line. Bond issues will end in the year 2031 with the amount of
226.47 million A$, followed by some adjustment issues between 2036 through2041.
On the other hand, bond redemption, shown in green line, starts in 2016
with the amount of 16.11 million A$, which keeps increasing and ends in 2041
with 226.49 million A$, followed by some adjustment redemption between 2046
through 2051. Total long-term debt of the project shown in gray line peaks at
1.434 billion A$ in 2032, but will be completely cleared in 2051.
r un3%
r un5%
400 M

Annual I s s ues of COALA Gr een Bonds - t i me gr aph

300 M

200 M

100 M

0

2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 2051 2054 2057 2060
2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058
2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050 2053 2056 2059

Figure 18: Annual Issues of COALA Green Bonds
Blue bar line in Figure 18 illustrates a detailed look at the figures of annual
issues of COALA green bonds. Figure 19 shows that total assets of the projectexceeds liabilities in 2036 with the assets value of 1.048 billion A$, and keeps
increasing far beyond liabilities later on.
Blue line in Figure 20 illustrates that a return of assets (ROA) from the
project becomes 27.85 % in 2031 and maintain a higher ratio of more than 10%
till 2047, beyond which it still keeps a comparatively higher level of around 5%
compared with those in other industries. For instance, ROA of the world largest21

As s et s & Li abi l i t i es
8 B A$
60 M A$/ Year
6 B A$
45 M A$/ Year
4 B A$
30 M A$/ Year
2 B A$
15 M A$/ Year
0 A$
0 A$/ Year
2006

2015

2024

2033
2042
Ti me ( Year )2051

As s et s : r un3%
Li abi l i t i es : r un3%
I nt er es t Expens e : r un3%

2060
A$
A$
A$/ Year

Figure 19: Assets and Liabilities
and best performance automobile company, Toyota, between 2000 through 2005
were 4.021%, 5.553%, 7.378%,6.594%, 6.111%, and 7.729% according to thecalculation by the author Yamaguchi.
Ret ur n on As s et s ( ROA)
40

1/ Year

20

0

- 20

- 40
2006

2012

2018

2024

2030 2036
Ti me ( Year )" Ret ur n on As s et s ( ROA) " : r un3%
" Ret ur n on As s et s ( ROA) " : r un5%

2042

2048

2054

2060

Figure 20: Return on Assets
To make our bonds attractive in global financial markets, we have tried
another simulation with 5% of yield or interest rate. Red bar line in Figure
18 illustrates a detailed amount of annual issues of COALA green bonds, andred line in Figure 20 illustrates returns of assets (ROA) in this case. With thishigher and globally more competitive yield of 5%, returns of assets from our
project still indicate better profitability in the long run.

22

In this way, the green bonds of the project are shown to be attractive enoughin competitive financial markets. Yet, the success of the project would be moresecured, we strongly believe, if the green bonds were to be underwritten by
the central or local government as a part of their sustainable public policies.
Sustainable business warranted partially by the government would provide a
new business model for creating sustainable futures, and the COALA project
could be its first case.

Green Management with Simulations
Our feasibility analysis need not be confined to what is presented in this paper. Suspicious investors could run their own simulations by making their own
convincing assumptions on the parameters of the model used in the model suchas costs and prices before they make financial commitments. Project managers
could also adjust parameter values at each stage of the project implementation to examine whether its actual performance is following the behavioral pathof the project predicted by the model, and judge its economic feasibility andprofitability by themselves.
Along this future-oriented way of thinking, let us try Monte Carlo simulation
for the price of logs that will be normally distributed with a mean price of A$180
and standard deviation of A$50. The min-max range of distribution is confined
between A$80 and A$280. Figure 21 demonstrates a sensitivity range of the netpresent value of net cash flow from the project, called NVP of COALA Project,in which mean value is shown in red line. This indicates that from 2032 on, netpresent value of the project keeps increasing rapidly at any risk.
s ens i t i vi t y
50%
75%
95%
100%
NPV of COALA Pr oj ect
6 B

4. 5 B3 B

1. 5 B

- 80
2006

2020

2033
Ti me ( Year )

2047

2060

Figure 21: Monte Carlo Simulation of NPV of COALA ProjectOpen and flexible style of repeated simulations is absolutely necessary forsustainable project management which usually takes longer time compared with23

business-as-usual management. Project information and model need to be open
to the public all the time for consistent evaluation by simulations so long as the
project is warranted by the government. This is a new management style andstrategy we recommend for green management.
System dynamics modeling method meets this need very effectively. Modelbased management is absolutely necessary for green management to attain public consensus as well as investors’ support. We are pleased to provide our modelto the concerned reader of the COALA project.

Conclusions
We have demonstrated that the COALA project is first of all beneficial to both
Australia and Japan in the sense that coal-fired power plant by-products inJapan will help improve Australian land for afforestation, and the forest trees
on the reclaimed land could absorb carbons which are discharged by burning
coals, though not so much. Then it is shown that the project is sustainable in thesense that forest on the reclaimed land can recycle itself with the improvementof land quality. Finally it is shown that, if the project is actually implemented inAustralia jointly with Japan, it becomes profitable in the long run in the sensethat not only the green bonds of the project can offer attractive yield to theinvestors in competitive financial markets, but the project constantly provides
competitive returns of assets and best performances to the green managers.
Business as usual decisions are based on short-term economic activities, yet
our economic feasibility analysis demonstrates that sustainable business is indeed as profitable or better in the long run. More than that, recent climatechange or global warming environment would not allow us to waste time for
implementing the project to create ecologically friendly futures.

Reference
1. Lu, G.Q. and Nitta, Y. (1999). Enhanced Greenhouse Gas Reduction by
Application of Japanese FGD Gypsum for Alkali and Sodic Land Reclamationin Australia – a Pre-feasibility Study, COP, Germany
2. Wearing C, Rudolph V. and Lu M. (2003) Coal Industry Byproduct Applied
to Land rehabilitation (COALA) Project Report 1, Brisbane, Queensland, Australia, vp (12 May 2003)
3. Swift R. and Spark K. (2006). Assessment of a Flyash-Derived Fertiliser
using Pot Trials. UniQuest Project No. 12952.02., Report prepared for Central Research Institute of the Electric Power Industry, Japan, by UniQuest Pty
Ltd. Consulting and Research, The University of Queensland, Queensland 4072,
Australia. (Feb. 2006).
4. Yamaguchi, K. (2003). Principle of Accounting System Dynamics – Modeling Corporate Financial Statements – “Proceedings of the 21st International
Conference of the System Dynamics Society”, New York City, USA, July 20-24,
2003.
24