A group of European researchers has calculated the total compensation planned for workers affected by the transition away from coal and found that it is either consistent with or lower than existing carbon prices within areas like the European Union.
However, the research only calculated those countries with existing coal phase-out plans that have included plans for what is often called the “just transition” which will see governments financially support those negatively impacted by the phase-out.
For countries with existing coal phase-out plans, the added cost of “just transition” compensation works out to $US200 billion, or around $A300 billion.
Specifically, the researchers found 23 countries, accounting for 16 per cent of the world’s coal power plants, have pledged around $US209 billion in compensation for those affected by the transition.
While that remains a lot of money, the researchers pointed out that it equates to roughly 6 gigatons of avoided CO2 emissions and that the cost of compensation for the coal phase-out in these countries per tonne of avoided CO2 emissions ($US29-46/tonne) is actually well below recent carbon prices in Europe (around $US64-80/tonne).
“Previously, coal phase out has often been blocked by the interests opposing it,” said Jessica Jewell, associate professor at Chalmers University of Technology and one of the authors of the study. “Many countries have put money on the table through ‘just transition’ strategies which has made coal phase-out politically feasible.
“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 target.”
The research, co-authored by researchers at Chalmers University of Technology in Sweden and Central European University in Austria and published in the journal Nature Communications, concludes that “compensating affected actors is essential, especially in the case of large-scale and rapid phase-out.
“This casts compensation as not only necessary but also a rational policy because it suggests that societies can either pay to emit CO2 or cut emissions and compensate affected actors with approximately the same price tag, the latter option being more attractive for the climate,” wrote the authors.
However, the research acknowledges that there remains a significant obstacle – or, more specifically, two significant obstacles: China and India, the two largest coal users in the world, neither of which have a coal phase-out plan.
Together, China and India are home to over half of the world’s coal plants, and both continue to build more to meet the demands of their massive populations – both of which hover around the 1.4 billion mark.
The researchers find, then, that for China and India to adopt just compensation policies similar to those seen in other countries and to do so in line to achieve the goals of the Paris Climate Agreement, the estimated costs for both countries would cost $US2.4 trillion for the 2°C target and $US3.2 trillion for the 1.5°C target.
This then raises the question of where all that money will come from.
Today, according to the researchers, almost half of the just compensation is funded from international sources such as Just Energy Transition Partnerships (JETPs), new multi-lateral structures for accelerating the phase-out of fossil fuels. JETPs are intergovernmental partnerships which coordinate financial resources and technical assistance from countries in the Global North to a recipient country to help it in this regard.
JETPs support the coal phase-out in countries like Vietnam, Indonesia, and South Africa.
Meeting the potential compensation needs of China and India would, according to the researchers, “likely need to be funded in large part from international sources and could pose a significant financial burden on international climate financing. More precisely, it would likely exceed both the Paris climate finance pledge and potentially all global Official Development Assistance.”
“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,” said Lola Nacke, a doctoral student at Chalmers University of Technology and one of the authors of the study.
“Discussions about the cost of climate change mitigation often focus on investments in renewable energy technologies – but we also see it’s essential to address social implications of fossil fuel decline to enable rapid transitions.”
The researchers also acknowledge the need for their work to “be continuously updated” as new countries develop their own coal phase-out and just transition policies and “as the mechanisms affecting compensation could shift.”
