The next US administration has the chance to strike the greatest climate bargain of all time. For less than $3/ton of CO2 abated, the next US government could economically retire the nation’s coal plants and buy back the planet’s future – all while saving US consumers billions.
Jules Kortenhorst is the chief executive officer of Rocky Mountain Institute (RMI) and a recognised leader on global energy issues and climate change. Below he explains why we need to be bold as we transition away from fossil fuels.
This bargain is not too good to be true and it must be done, because the shift away from coal is happening more slowly than the planet needs – or simple economics would predict. In the United States, coal-fired power plants are overcharging Americans for dirty power when they’d overwhelmingly prefer clean power that’s actually cheaper. And the same is increasingly true across the globe.
As of late 2018, power utilities still had an estimated $170 billion tied up in the 231 remaining US coal plants. Because new solar and wind are so much cheaper, even without federal tax credits, RMI estimates that one-third of these plants could be replaced with clean energy at negative net cost. The remaining $115 billion worth of coal plants could be retired and replaced with a net subsidy of about 30 per cent of their remaining value.
This bargain is not too good to be true and it must be done, because the shift away from coal is happening more slowly than the planet needs – or simple economics would predict.
The bottom line of the RMI analysis is this: retiring the entire US coal fleet today would cost $35-40 billion. That’s less than one year’s worth of fuel cost to run America’s coal and gas plants. Closing these coal plants an average of 10 years early would eliminate a gargantuan 12 billion tons of CO2 at the bargain cost of $3 per ton.
Most of the remaining coal plants are owned by monopoly utilities that face no direct competition and have no real incentive to abandon them. Regulators and governments authorised these utilities to invest the $125 billion they have tied up in coal assets, so their customers are ultimately on the hook to repay them – with a financial return to boot. Meanwhile, coal communities are understandably concerned about the prospective loss of a primary employer and source of local taxes.
Utilities can refinance or seek partial debt relief, passing on as much as $6 billion in cost savings every year to customers when they retire coal plants. Using some of those savings for transition assistance and repurposing land and infrastructure can provide new jobs and economic opportunities for coal communities. Better yet, recycling saved capital into clean energy that is much less expensive than operating the old coal plants (with the help of federal tax incentives) can unlock another $7-10 billion in annual ratepayer savings – a win-win for customers and the environment.
Using some of those savings for transition assistance and repurposing land and infrastructure can provide new jobs and economic opportunities for coal communities.
For instance, a federal green bank like the one recently proposed in the National Green Bank Act could provide ‘retire and replace’ financing for existing coal plants, incentivising publicly-owned utilities to switch to clean energy in exchange for partial debt relief. Similarly, the US Department of Agriculture could spur early retirement of rural electric cooperatives though write-downs or loan restructurings combined with financing for replacement clean generation.
Of course, the United States is just a 250 GW piece of a 2000 GW global coal plant puzzle. Fortunately, renewables are already cheaper than existing coal in parts of India, China, the European Union, and South Africa, with Indonesia and Vietnam expected to follow. In much of the developing world, where electricity is often subsidised and coal power plants are financed or owned by governments, the impacts of this changing reality will be profound.
The solution for each region will be different, but the critical importance of public banks is a common theme. Europe doesn’t need a new green bank to help facilitate a solution for its 185 GW coal fleet: it already has the European Investment Bank, the world’s biggest multilateral financial institution. China’s state-owned economy has all the authorities and institutions necessary to recycle savings from the shift to clean energy while retiring its 1,000 GW of coal plants. That leaves around 500 GW of coal in other developing countries – the core clients of multilateral development banks like the World Bank and Asian Development Bank.
Public banks feel they’re making progress on coal because most of them have finally decided not to fund new coal plants. But with the climate crisis intensifying and coal economics fast eroding, we have no time to waste and must start financing the closure of existing plants as well. The shareholders of these public banks – including the US – should be bold in putting their balance sheets and powerful development tools to work in driving the transition from coal.
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The Rocky Mountain Institute merged with the Carbon War Room (CWR) in December 2014. The CWR was founded by Richard Branson and Virgin Unite as a think tank to work on issues regarding market-based solutions to climate change.