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To end King Coal’s reign, must his loyal subjects get paid? Compensating phase-out losers for a just transition

The huge task of phasing out coal requires a detailed roadmap to sequence coal plant retirement with a range of policy instruments and support for key stakeholders which will expand current notions of a just transition, leading energy experts have said.

Governments should be prepared to pay billions of pounds to operators of coal-fired power plants in agreements to shut down their plants early, a new paper published in Nature Climate Change today recommends.

The paper recommends extensive compensation should also be considered for regional economies hardest hit by the loss of coal producers and energy-intensive industries that will have to absorb higher energy prices in order to ensure a just transition to greener energy production.

To prevent regions such as the coal belt in the United States or dependent communities in Germany and Poland being abandoned after coal, the study recommends governments should foot the bill for extensive improvements to localised transport and communication infrastructure, higher education provision, new business opportunities and the relocation of government services.

And to shield the poor from electricity price rises resulting from replacing coal plants with more costly alternative power generation, governments and regulators should consider Just Transition measures including adjusting electricity tariffs, investing in community benefit funds or subsidizing energy efficiency through weatherization and retrofits programmes targeted at the most in need or vulnerable.

Benjamin K Sovacool, Professor of Energy Policy in the Science Policy Research Unit (SPRU) at the University of Sussex Business School, said: “Paying billions to some of the world’s biggest polluters to avert a climate catastrophe they helped to create may sound unpalatable to some environmentalists But compensating the biggest losers from coal phase-out, alongside improving equity and accountability processes, will go a long way towards achieving all the other aspects of a just energy transition including legitimacy, desirability, speed of transition and financing. Simply put: a just transition requires more than just safeguarding jobs, and involves protecting the resilience of entire communities across both high-carbon as well as low-carbon energy pathways.”

In the new paper published today, 13 energy experts led by Michael Jakob and Jan Christoph Steckel from the Mercator Research Institute on Global Commons and Climate Change (MCC) in Berlin outline that while the power sector must stop using coal without carbon capture-and-storage within 30 years, coal combustion currently accounts for 40% of global CO2 emissions from energy and coal use with growing demand in China, India and other Asian countries.

To quicken the rate of coal phase-out to meet the Paris Agreement timelines, the study authors recommend governments remove all coal subsidies immediately to create a level playing field for clean energy sources.

Dr Steckel said: “In my view, the novel twist we give to the debate is that we need to think of “who’s losing” beyond a “particular group”, “get them paid”, and we also propose how this could be financed via a tax on carbon.”

And policymakers and legislators should also consider imposing additional carbon costs on coal plants to accelerate phase-out and raise funds in support of affected workers, communities and consumers, the academics recommend.

Dr Jakob, lead author of the study, said: “Coal phase-out can only succeed if it takes into account social objectives and priorities. It is crucial that the modalities of coal phase-out are seen as fair and that the process corresponds to political realities. Policymakers need to understand in more detail who will be affected by a transition away from coal, how these societal groups can be effectively compensated and how powerful vested interests can be counterbalanced.”

Coal phase-out is also likely to affect the competitiveness of other industries such as steel, aluminium, chemicals, and other important components of industrial strategy, the study warns.

To counter the risk of carbon leakage through the migration of energy-intensive industries to regions with laxer climate measures, policymakers should consider a range of measures including carbon contracts for difference or mechanisms of technology transfer .

Co-author Professor Frank Jotzo, from the Australian National University's Crawford School of Public Policy and Director of the Centre for Climate Economics and Policy at ANU, said: “What is needed in the transition away from coal is a clear way forward for regional economies and communities, creating prospects for new jobs and business opportunities, while limiting adverse impacts on consumers and energy-intensive industries.”

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By: Neil Vowles
Last updated: Tuesday, 28 July 2020

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