Coal phase-out is considered necessary to address climate change, but it can have negative implications for workers and communities that depend on coal for their livelihoods. A study conducted by researchers at Chalmers University of Technology and Central European University found that over half of government plans for coal phase-out globally include monetary compensation for affected parties, amounting to around USD 200 billion. However, the two largest coal users, China and India, do not currently have phase-out plans in place. If these countries were to phase out coal to meet Paris climate targets and provide similar compensation, it could cost upwards of USD 2 trillion.
To combat global warming, coal use must be eliminated, but policies to phase out coal can negatively impact companies, lead to unemployment, and create economic challenges for coal-dependent regions. Some countries have implemented ‘just transition’ strategies to support affected companies, workers, and regions during coal phase-out. Germany, for example, has pledged over EUR 40 billion to assist those impacted by coal phase-out. These strategies have made coal phase-out politically feasible in many countries where it was previously opposed.
Countries with significant coal power production and rapid phase-out plans typically have compensation policies in place. The study identified 23 countries with 16% of the world’s coal power plants that have pledged a total of USD 209 billion in compensation. While this may seem substantial, the cost of compensation for coal phase-out per tonne of avoided CO2 emissions is actually lower than recent carbon prices in Europe. However, achieving the goals of the Paris climate agreement will require participation from major coal consumers like China and India, which currently lack phase-out plans.
The estimated costs of compensation for coal phase-out in China and India are significantly higher than those of other countries and could present challenges given their economic capacities. Funding for such large sums may need to come from international sources, as about half of current compensation funds are provided by international partners. Discussions around climate change mitigation often focus on renewable energy investments, but addressing the social implications of fossil fuel decline is crucial for enabling rapid transitions. International finance may be necessary to support future coal phase-out in major coal-consuming countries.
The study underscores the importance of addressing social implications and supporting affected parties during the transition away from coal. Just Energy Transition Partnerships (JETPs) are new intergovernmental structures aimed at accelerating the phase-out of fossil fuels, with some partnerships already in place for countries like Vietnam, Indonesia, and South Africa. The EU Just Transition Fund supports territories most negatively impacted by the transition towards climate neutrality, aiding in economic diversification and reconversion. Ultimately, global efforts to combat climate change must consider not only technological investments but also the social aspects of transitioning away from fossil fuels.
