Report: Governments collectively failing to deliver net-zero-aligned coal phase-out

The IEA is forecasting an 8% year-on-year decline in coal generation - but government recovery plans could result in the coal sector rebounding

That is the stark warning from a new research paper published in the journal ‘Nature’ this week, co-authored by 13 academics specialising in climate change, public policy, international relations and energy.

The research paper explains how, in spite of the fact that coal plants without carbon capture and storage (CCS) technologies are incompatible with net-zero – a milestone the IPCC has proven must be reached by 2050 if the world is to cap warming at 1.5C – many nations are planning to dramatically increase their coal generation capacity in the next three decades.

Bangladesh has more than doubled its coal generation capacity since 2015, for example, with generation capacity also having boomed in the Philippines (77% increase), South Korea (22% increase) and Indonesia (21%).

This trend is set to continue over the coming decades, particularly in populous Asian countries such as China, Japan and India, as governments are broadly failing to deliver ambitious coal phase-out plans as part of their climate commitments, the report concludes. These failures will result in emissions larger than those set to be prevented by coal phase-out strategies in nations like Spain and the UK.

The report goes on to recommend a string of policy instruments which governments can deploy to ensure that their coal phase-out strategies are aligned with climate science and are socially just, ensuring that workers and communities currently dependent on coal are reskilled and that developing nations are supported to industrialise in low-carbon ways.

Ministers should remove coal subsidies as soon as possible, as they are hampering the creation of a level playing field for renewable and low-carbon energy generation, the report argues. According to the International Monetary Fund (IMF), governments provided $5.2trn in fossil fuel subsidies in 2017 – equivalent to 6.5% of global GDP. Many nations with net-zero targets have not yet developed subsidy phase-out plans. 

Caps on new coal facilities should then be implemented, to slow the future pipeline, alongside higher carbon pricing.

Governments should also prepare to pay off coal-fired power plant operators for agreements which will see their facilities closed before the end of their working lifespan and their employees reskilled for work in other, lower-carbon sectors, the research paper argues. Such agreements are likely to cost millions of dollars per power plant but will create economic benefits in the form of stronger clean energy sectors, reduced healthcare costs and natural capital.

While reskilling is a crucial part of any ‘just’ transition, the report argues that it is not a silver bullet and that a more holistic approach is needed. Should electricity prices increase as a result of investment in new clean energy generation, governments should shield the poorest by adjusting tariffs, investing in community benefit funds or subsidising energy efficiency. The UK Government notably sees energy efficiency subsidies as a key mechanism for reaching key social, economic and climate milestones post-Covid-19, and has earmarked £3bn for loans and grants over the next year.

The report additionally recommends extensive compensation for regional economies hit the hardest by coal plant closures, to be paid for by central government and through Nationally Determined Contributions (NDCs) to the Paris Agreement. Funding should be used to expand lower-carbon industries like communication technology, finance, higher education and low-emission transport.

“Efforts to phase out coal will only succeed if stakeholders are involved early on in the decision process to ensure democratic legitimacy,” the report warns.

“This is particularly important during times in which populist parties increasingly depict climate change mitigation as a project undertaken by the political elite against the interests of the broader population, and where well-founded concerns about economic prosperity dominate public discourse.”

What next for coal?

With energy demand having fallen across the world as a result of Covid-19 lockdowns, many governments have ordered coal plants to come offline for longer than usual. The US Energy Information Administration expects 20% less coal generation in 2020 than last year. On a global scale, the IEA is forecasting an 8% year-on-year decline.

This decrease in coal consumption, compounded by the development of “green” recovery packages, worsened the coal sector’s financial outlook – already dampened by stronger climate policies. S&P Global Market Intelligence claims that coal companies were at more than three times the risk of defaulting on payments in March 2020 than in March 2019.

The UN is urging national governments not to bail out coal companies at this moment in time, as it does not believe that the sector can credibly transition in line with the Paris Agreement. Addressing world leaders representing more than 80% of the world’s annual energy use at a recent virtual conference, United Nations Secretary-General António Guterres said: “Coal has no place in COVID-19 recovery plans.”

Nations including the UK, Canada, South Korea and Nigeria have committed to excluding coal generators from their recovery packages, providing them with no bail-outs or other supports. But hefty bailout packages have already been awarded in the US.

Sarah George