What is the price tag of phasing-out coal? For China & India, at least $2 trillion

The fight against climate change demands a transition away from coal, but the economic impact on coal-dependent communities raises concerns. A new study by researchers in Sweden and Austria has shed light on the financial challenges of this transition.

The study, Compensating affected parties necessary for rapid coal phase-out but expensive if extended to major emitters, was conducted by Chalmers University of Technology and Central European University, analysed government plans for coal phase-out around the world. The paper was published in journal Nature Communications on May 7, 2024. 

Its findings reveal that over half of the plans of transition away from coal involve monetary compensation for affected workers and communities. This planned global compensation amounts to a staggering $200 billion. However, this figure excludes China and India, the world’s top coal consumers, which currently lack concrete phase-out plans, according to the study.

The researchers estimated that if China and India were to phase out coal at the pace required to meet the Paris Agreement climate goals and offer similar compensation packages, the cost could skyrocket to over $2 trillion.

The study underscored the complex balancing act involved in phasing out coal. While the environmental benefits are undeniable, ensuring a smooth transition for workers and communities is equally important. 

The researchers emphasised the importance of international collaboration in financing a just transition, particularly for developing countries like India, which may face greater economic burdens.

“Previously, coal phaseout has often been blocked by the interests opposing it. Many countries have put money on the table through ‘just transition’ strategies, which has made coal phaseout politically feasible,” Jessica Jewell, associate professor at Chalmers University of Technology, and one of the authors of the study, said in a statement.

Combined, about 23 countries, home to 16 per cent of global coal power infrastructure, have committed approximately $209 billion for compensation. However, the amount it translates to just around 6 gigatonnes of carbon dioxide (CO2) emissions avoided. 

Moreover, the cost of compensating for coal phase-out per tonne of avoided CO2 emissions (ranging from $29 to $46 per tonne) is notably lower than recent carbon prices in Europe (approximately $64 to $80 per tonne).

“So far, these ‘just transition’ policies are consistent with, or lower than, the carbon prices within the European Union, 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,” said Jewell in the statement.

If China and India were to implement compensation measures akin to those already established, the projected compensation sum for both nations would be $2.4 trillion to achieve the 2 degrees Celsius target and $3.2 trillion for the 1.5°C target, the study said.

“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 another author of the paper.

The paper posed a difficult question regarding the source of funding for these substantial amounts. Presently, approximately half of all compensation funds originate from international channels, such as the Just Energy Transition Partnerships — multi-lateral structures for accelerating the phase-out of fossil fuels aiding coal phase-out efforts in Vietnam, Indonesia, and South Africa. 

It’s plausible that international financing will also be necessary to bolster future compensation for coal phase-out in major coal-consuming nations, the paper underlined.

However, researchers highlighted that the projected compensation figures for China and India alone rival the entirety of international climate finance pledged in Paris, surpassing current levels of international development aid to these countries.

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