Coal remains responsible for over a third of global electricity generation and is the largest source of energy related emissions1. To limit global temperature rises to 1.5˚C, coal generation must be reduced by 80% of 2010 levels by 20302. To achieve the IEA’s Net Zero emissions by 2050 scenario, all unabated coal generation will have to end by 20403.
It's clear that large-scale action is needed to accelerate the coal-to-clean transition. Fortunately, momentum is building. The Glasgow Climate Pact, agreed at COP26, saw 197 countries commit to phasing down unabated coal4. Coal transition initiatives have been established over the past year, including the recent notable announcement of the Indonesia Just Energy Transition Partnership (JETP), which aims to mobilise £17bn over the next three to five years to accelerate a just energy transition.
We know that coal must go, but what considerations are needed to ensure the transition is successful? The energy landscape is complex and multi-dimensional and the system-wide impacts must be understood. The Carbon Trust is driving strategic thinking and developing frameworks to understand and address the complex interconnections between the energy system, policy, economic and social dimensions of the coal transition. We believe that this system-wide approach is critical to unlocking the finance needed to accelerate the transition. Our Net Zero Intelligence Unit’s post on enabling conditions for achieving Net Zero discusses system-wide considerations in full.
The following section summarises the key challenges that must be considered by governments, utilities and other stakeholders looking to accelerate their coal transition journey:
The energy system challenge:
The global energy crisis has brought the issue of energy security into sharp focus. Understanding the wider energy system in a country or region is the first step to understanding the mechanisms of how it could move away from coal.
At national or regional level, the current and forecasted capacity of alternative energy generation must be understood. While renewable technologies are becoming increasingly available, they must be supported by dispatchable energy solutions to meet demand peaks. Energy storage development and measures to manage electricity demand must also be considered.
At plant level, considerations must be taken around whether a plant should be retired or repurposed. Retiring plants is preferable but repurposing may also be appropriate. e.g., using the site for renewable generation, co-firing alternative fuels, or retrofitting emission reduction technologies.
The economic and policy challenge:
Energy markets are fundamentally shaped by government policies, some of which aim to remove coal, while others support its continuity. Despite commitments to transition towards cleaner energy, the wider economic role of coal, through taxes, royalties, state owned assets and employment, can result in counterproductive policies such as fossil fuel subsidies, capacity payments, long-term contracts and compliance exemptions. Understanding this wider role is critical to planning an effective policy transition.
While government commitments to carbon reduction are a key driver, comprehensive policy overhaul will often be necessary to address policy conflicts. Policy tensions could include unbalanced subsidy regimes that superficially support renewables but offer far greater support to coal, fiscal arrangements that offer coal an indirect subsidy, or planning policies that facilitate coal whilst hindering renewables. Where policies impacting coal are in conflict, the coal transition will stumble.
The social challenge:
The coal transition will inevitably impact livelihoods and communities. Global coal mining jobs currently total 4.7 million, and indirect employment is extensive5. Employees and informal workers will face displacement at all levels, and plant closures will threaten the resilience of communities dependent on these assets. Closures will also impact tax revenues, local infrastructure, and energy affordability.
Transition planning must aim to minimise the risks of adverse effects on communities, workers, and other impacted stakeholders, while maximising opportunities to develop local green industries and improve community resilience. At minimum, transition plans should address jobs and skills gaps through reskilling programmes and financial support for example, assisting workers to find decent alternatives, sustained work and to minimise displacement. Wider community support should include social services, investments in education and training for green jobs, and initiatives aimed at diversifying the local economy and accelerating clean energy production.
There is no simple solution for ensuring an equitable energy transition. The risks and opportunities are dependent on each country’s geographic, political, social, and economic context, so a place-based approach is critical. Planning for the transition requires early, inclusive, meaningful engagement with stakeholders affected, the recognition of unequal impacts, and should strive for an equitable distribution of costs and benefits.
The financing challenge:
In many markets, the cost of renewable energy is competitive with the cost of coal generation and is continuing to decrease. By 2025, uncompetitive coal plants worldwide are estimated to reach 78%6. However, despite the environmental and economic pressure, transition away from coal as a dominant power producer has been slow.
As awareness of the need for early retirement of coal asset has increased, so too has the conversation around coal transition mechanisms (CTMs). CTMs, which apply innovative finance mechanisms to accelerate the coal transition, represents a promising solution to mobilise significant capital to advance the coal-to-clean transition. Building on the momentum generated by COP26, the Coal Asset Transition Accelerator (CATA) has been developed to accelerate the application of CTMs to enable affordable and equitable early retirement, or repurposing of CFPPs, and accelerate coal to clean transition.
Through our collaborative work on CATA and our wider energy transition initiatives, the Carbon Trust is working to navigate and provide solutions to the complex system-wide challenges that have been found to impede a rapid transition away from coal. We have developed a coal plant prioritisation framework which assesses energy system, policy, and social aspects of the coal transition to ensure future plant-level transactions deliver impact across all dimensions.
Working with local partners, we are currently carrying out fleet-level analysis in South Africa and Pakistan to identify opportunities to accelerate the decommissioning or repurposing of individual coal plants. In addition, we are responding to feedback from a range of stakeholders to further assess how energy system, social, policy and financial considerations should be taken within country-level transition planning.
- IEA, 2022. Coal in Net Zero Transitions. Available at: https://iea.blob.core.windows.net/assets/4192696b-6518-4cfc-bb34-acc9312bf4b2/CoalinNetZeroTransitions.pdf
- Climate Analytics, 2019. Global and regional coal phase-out requirements of the Paris Agreement: Insights from the IPCC Special Report on 1.5˚C. Available at: Coal_Report_September-Formatted (climateanalytics.org).
- https://www.iea.org/fuels-and-technologies/coal
- World Economic Forum, 2021. Five things you need to know about the Glasgow Climate Pact. Available at: COP26 explained: What does The Glasgow Climate Pact mean? | World Economic Forum (weforum.org).
- World Bank, 2022. Global Perspective on Coal Jobs and Managing Labour Transition Out of Coal. Available at https://www.worldbank.org/en/topic/extractiveindustries/publication/global-perspective-on-coal-jobs-and-managing-labor-transition-out-of-coal
- RMI, The Carbon Tracker Initiative & The Sierra Club, 2020. How to Retire Early: Making Accelerated Coal Phaseout Feasible and Just. Available at: rmi_how_to_retire_early.pdf.
