Energy decarbonization & Coal phase-out: financial, technological and policy drivers

The 24th Conference of the Parties (COP) closed in Katowice on December 15th, 2018. After two intense weeks of talks and crunch negotiations (with ‘overtime’), the almost 200 parties in the conference managed to agree on a 133-page rule-book which guides the implementation of the Paris Agreement. These guidelines specify how the Paris commitments will be measured, implemented and monitored. The “Katowice package” represents an important achievement ensuring a high degree of transparency in decarbonization, especially in light of recent geo-political challenges to this process. Yet, the parties could not see eye-to-eye on several key issues, including the rules for voluntary carbon markets of Article 6 of the Paris Treaty.

Indeed, the slow and convoluted negotiation process clashed with the call for urgency by the scientific community. According to the latest Special Report of the IPCC on 1.5 degrees, time is of the essence. Inaction has high costs. At current rates, by 2040 the world mean global temperature will be 1 degree higher than in 1990. And this could happen even sooner, with greenhouse gas emissions rising again this year after a couple of years of stagnation. Furthermore, limiting temperature increase to 1.5 degrees (rather than simply ‘well below’ 2 degrees as called for in the Paris Agreement) would significantly lower the risk of negative climate impacts. But the more we wait to take mitigation – and adaption – actions, the more expensive it will be to tackle these problems.

The need to find political consensus to push forward the decarbonization agenda is only one of the barriers to decarbonization. Other crucial financial, technological and policy barriers exist, especially with respect to the need to phase out fossil fuels, and coal in particular. Some of these barriers were presented and discussed at the COP side event “Energy decarbonization & Coal phase-out: financial, technological and policy drivers” held on December 3rd, 2018 in the EU Pavilion. The session showcased the latest research insights from ongoing research projects and from practitioners engaged in promoting decarbonization on the ground in energy and carbon intensive European countries.


Crucial role of technologies, policies and finance

Elena Verdolini from the RFF-CMCC European Institute on Economics and the Environment, presented initial results from the INNOPATHS project, a four-year EU H2020 project that aims to work with key economic and societal actors to generate new, state-of-the-art low-carbon pathways for the European Union. Her presentation was structured around three key INNOPATHS outputs. First, the “Technology Matrix”, an online database presenting information on the cost of low-carbon technologies and their performance, including both historic and current data, and future estimates. The key feature of this database is the collection of a wide variety of data from different data sources, and the computation of metrics to measure the uncertainty around values. The matrix will thus contribute to mapping technological improvements (and associated uncertainty) in key economic sectors, including energy, buildings and industry. It will show that many low-carbon technologies options are available in certain sectors, but also the specific technological gaps characterizing many hard-to-decarbonize sectors, including aviation, or energy-intensive manufacturing sectors such as chemicals and heavy metals. For these technologies, additional and dedicated Research, Development, Demonstration and Deployment funding will need to be a priority.

The second key output is the “Policy Evaluation Tool”; an online repository of evidence on the effect of policy interventions against key metrics, such as environmental impact (i.e. emission reductions), labour market and competitiveness outcomes. The tool will become a repository of evidence on what approaches and policy instruments work, or do not work, helping policy makers to understand how best to achieve various goals related to the energy transition.

The third key output are insights from INNOPATHS researchers focusing on the financing of the decarbonization process. First, similarly to the process of industrial production, financing costs benefit from “learning-by-financing”, as lenders develop in-house abilities and experience in the selection of renewable energy projects. Second, researchers focus on the importance that public investments can play in signaling change and promoting a shift of investments away from fossil and towards low- and zero-carbon technologies. In this respect, public banks are crucial actors, which can act as catalysts for private investments.


A shrinking role for coal

Laurence Watson, from Carbon Tracker, summarized the main insights from a recently-released report and online portal that provides a well-rounded assessment of the economics of coal-fired power plants across the world. The key point emerging from this analysis is that coal is that nearly half of all coal plants are currently unprofitable, set to rise to three quarters by 2040. Prevailing economics, nascent carbon pricing and an increased focus on the impacts of air pollution are driving this trend. In many regions renewables are rapidly approaching a cost that will be cheaper than operating existing coal plants, and by 2030 this will be the case in most markets. This means stranded assets in the power sector, and pressure on policymakers to not subsidize ailing coal fleets.

There is good evidence that coal’s contribution to gross domestic product and employment has shrunk over time – including in coal-intensive regions. This novel analysis provides important evidence for policy-makers and investors willing to align with the Paris Agreement climate targets. All the data is easily accessible through a data-driven interactive web-based tool which shows the cost and profitability of almost all of global coal-fired capacity.


Coal decline visible also for Silesia

Oskar Kulik of WWF Poland presented the impact of the declining role of coal through the example of Silesia, Poland, the largest hard coal mining area in the EU. While coal mining does still play an important role in the regional economy, its role is declining: from over 15% of the regional GDP in 1995 down to 6% currently, and from 300,000 jobs in the early 1990s, to around. 75,000 today (while maintaining unemployment rates below the national average).

Based on recent research by WiseEuropa the most important factors in this decline are the growing costs of coal extraction, driven by factors largely independent of low-carbon policy. Irrespective of the drivers, the region will be faced with socio-economic challenges as a result of such pressures. As such, the main recommendation is to plan for this transition in a way that will be just for the local communities and region as a whole.


Supporting stakeholder in the low-carbon transition

Alexandru Mustață from CEE Bankwatch Network discussed some of the challenges of the low-carbon transition encountered at the grassroots in six coal-intensive Eastern European countries, but also possible solutions. Through a project supported by the European Climate Initiative (www.EUKI.de), CEE Bankwatch Network is able to support knowledge between post-Soviet countries (such as through study tours in to the Czech Republic and Poland during the COP), and by collecting resources from researchers, trade unions, political parties or NGOs on a central platform. Many stakeholders from these regions are ready for alternative growth pathways, but lack the support (in the form of politics, policy, experience or infrastructure) to make it happen.

The common thread across all contributions was the importance of focusing on how macro-level decarbonization goals and commitment are presented, communicated and implemented at the local level. The core concern underlying COP24 was the need to tackle climate change but ensuring a just, inclusive transition that supports those groups and regions that may be hit hardest.



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