Coal Phase Out Will Cost China & India USD 2Trillion Presently, around half of all compensation is funded from international sources such as Just Energy Transition Partnerships, which are multi-lateral structures for accelerating the phase-out of fossil fuels.
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Coal power phase-out is critical for climate mitigation, yet it harms workers, companies, and coal-dependent regions. Over half of countries that pledge coal phase-out have "just transition" policies which compensate these sectors.
According to a report, compensation is larger in countries with more ambitious coal phase-out pledges. "Globally, compensation amounts to over USD 200 billion, about half of which is funded through international schemes, mostly through Just Energy Transition Partnerships and the European Union Just Transition Fund," nature communications said in its report.
This estimate excludes India and China, as the two largest coal users currently do not have phase-out plans.
The researchers estimated that if China and India decide to phase out coal as fast as needed to reach the Paris climate targets and pay similar compensation, it would cost upwards of USD2 trillion.
The researchers, hailing from Chalmers University of Technology in Sweden and the Central European University in Austria, have studied all countries with coal phase-out plans around the world and found that those with the most coal power production and with plans for rapid phase-out have compensation policies in place.
In total, these 23 countries with 16 per cent of the world's coal power plants have pledged about USD 209 billion in compensation. The researchers point out that it equates to roughly 6 Gigatons of avoided CO2 emissions and the cost of compensation for coal phase-out per tonne of avoided CO2 emissions (USD 29-46 per tonne) is well below recent carbon prices in Europe (~USD64-80 per tonne).
"So far these 'just transition' policies are consistent with, or lower than, the carbon prices within the EU, which means they make sense in terms of climate change. But more funding is likely needed if we want to reach the Paris climate targets," Jessica Jewell, one of the study's co-authors, said in a media statement.
This is because achieving the goals of the Paris Climate Agreement will not be possible without the participation of the world's major coal consumers, China and India, which have more than half of the world's coal plants, but no phase-out plans currently in place.
The study found that, for China and India to adopt compensation policies similar to those already in place, the estimated compensation amount for both countries would be USD 2.4 trillion for the 2°C target and USD 3.2 trillion for the 1.5°C target.
"The estimated compensation for China and India is not only larger in absolute terms but would also be more expensive compared to their economic capacities", Lola Nacke, co-author of the paper, said.
This raises the big question about funding for this large amount. Presently, around half of all compensation is funded from international sources such as Just Energy Transition Partnerships, which are multi-lateral structures for accelerating the phase-out of fossil fuels.
These inter-governmental partnerships coordinate financial resources and technical assistance from countries in the Global North to a recipient country to help it in this regard. They are currently in place in Vietnam, Indonesia and South Africa.
International finance might also be needed to support future coal phase-out compensation in major coal-consuming countries. However, the researchers note that the estimated amounts of compensation for China and India alone are comparable to the entire international climate finance pledged in Paris and larger than current development aid to these countries.
