The Future of Coal Regions: International Issues in Coal Just Transition

Speakers: 

• Professor Victor Seow, Assistant Professor of the History of Science at Harvard University and author of “Carbon Technocracy: Energy Regimes in Modern East Asia”
• Dr. Ryna Cui, Assistant Research Director at the Center for Global Sustainability, University of Maryland School of Public Policy
• Professor Dustin Tingley, Professor of Government, Harvard University
• Professor Richard Vietor, Baker Foundation Professor of Business Management, Harvard Business School

Professor Seow spoke about the history of a statist approach to industrial development through access to abundant and cheap energy in China, and proposed a three-pronged approach of Remediation, Retrenchment, and Regret to understand the history of coal mine closures. Dr. Cui presented a plant-by-plant strategy for targeted coal power phaseout in China with the economic and social costs and benefits of an accelerated coal phaseout and a framework to assess the financing needs for implementing the proposed retirement pathway in Indonesia under the Just Energy Transition Partnership (JETP). Professor Vietor talked about the challenges of just energy transition in South Africa, with an emphasis on fiscal issues, the loss-making state-owned power producer, and the labor issues related to the geographical shift in old coal jobs vis-a-vis new green jobs. Professor Tingley discussed the challenges to energy transition due to the government's inability to credibly commit to compensate the incumbents who stand to lose from this transition.

• The costs of coal power closures are concentrated but the benefits are distributed, which creates hurdles for building broad coalitions for energy transition

According to Dr. Cui’s research, the estimated retirement costs of coal-based power plants in Indonesia  stand at $4.6 billion through 2030 and $27.5 billion through 2050. The savings from avoided coal power subsidies and public health costs amount to $34.8 billion and $51.3 billion over the same time periods. While the quantified benefits considerably outweigh the costs, the costs are borne by concentrated interests through job and income losses, stranded assets, state coal revenue losses, etc. The benefits of better public health through cleaner air and water are large but distributed among millions of people, often overlooked in the short-term and do not accrue direct monetary credits.

• The inability of the government to credibly commit to its promises and the uncertainty on whether benefits from green industry investment will materialize, endure, and provide local benefits result in fossil fuel communities resisting transition

There is a lack of trust from fossil fuel communities in government promises on investments, compensation and retraining. Governments face challenges to deliver the promises due to political and economical volatility, tax burden, and government trustworthiness. An example of this is the Byrd Amendments to the Clean Air Act in the U.S. in 1990 that introduced the cap-and-trade program to combat acid rain. The Amendments would have provided transitional support to coal communities and constituents, but were defeated in the legislative votes. The final bill only included a sliver of assistant support which was not re-authorized several years later. Similar challenges exist in developing countries. such as South Africa, India, and Indonesia, where domestic budget constraints are even more binding and/or there are more political and economic volatilities due to economic growth, unemployment rates, corruption, etc. 

• While Just Energy Transition Partnership (JETP) provides financial support from developed countries to developing countries, it has fallen way short due to internal political misalignment for foreign aid, causing skeptics of whether it will actually materialize

While the Paris Agreement was signed by developed countries to transfer $100 billion per year to developing countries to facilitate their energy transition, there has not been much progress on the commitments. Majority of the money has come in the form of loans and not grants, in addition to a massive gap from a promised transfer of $100 billion annually. Experts in both developed and developing countries are skeptical that these transfers will materialize. Building bipartisan support for transfers to purportedly corrupt governments in developing countries is extremely difficult.

Policy Recommendations:

• The large upfront costs of coal based power retirement necessitate substantial international monetary support in developing countries which have much smaller fiscal capacity to undertake these investments despite the larger benefits gained in the long run. 
• Governments need to credibly signal to fossil fuel communities that they will be compensated for transition. Potential solutions to build credibility include creating institutional constraints of laws, delegation to communities; hand-tying mechanism of devising fixed decision rules and constraining with future costs; building broad coalitions through bipartisan support; lock-in effects through investments in communities; provision of private benefits and incentives to stay and costly signals through unexpected investments. 
• One potential approach to building political support in the US for climate finance in developed countries can be to tie it with local economic development and increase the involvement of American firms. 

This is a report for a study group titled The Future of Coal Regions, co-sponsored by the Reimagining the Economy Project and the Belfer Center's Environment and Natural Resources Program, designed for Harvard students to learn and share knowledge about the challenges facing coal-producing regions, to identify opportunities for overcoming these challenges, and to foster connections and collaborations between students, faculty, and affiliates. Over the course of Spring 2023, the study group focused on coal-producing regions around the world, but the discussion generated insights applicable to other fossil-fuel-producing regions.