Blog Posts

Just transitions for coal sector going mainstream – but policies need strengthening

By Oliver Sartor, Senior Research Fellow, Climate and Energy, IDDRI

(From IDDRI’s blog)

In mid-2018, Coal Transitions argued that the global effort to phase out coal consumption was speeding up and that this would intensify in the coming years. Only 6 months later, this prediction is looking pretty good. However, a lot of necessary work is still to be done, both to align with the ambition of the Paris Agreement and to ensure a just transition for affected workers and citizens.

The transition from coal is gaining momentum

As of late 2018, 30 national governments, 22 sub-national governments and 28 businesses had committed to phase out coal by 2030, under the Powering Past Coal Alliance. Nonetheless, a common critique was that these governments only accounted for about 3% of global coal consumption. But, in the last few months, the transition from coal has started to get under way in the major coal-using economies.

Germany is the world’s fourth biggest economy and fifth largest consumer of coal. Only China, India, Indonesia and Russia consume more coal per year than Germany. On January 26st, Germany’s “coal commission”—a committee established by the Government and made up of coal sector stakeholders tasked to explore the terms for a fair and feasible German coal exit—came to a landmark compromise agreement on a full exit from coal by 2035-2038 (full text in German here).

The German decision was followed by three other major events in the coal market

Firstly, Glencore Xtrata, the 4th largest commodities miner and biggest coal exporter in the world, announced that it was capping its coal output at 129Mt/yr and would begin to diversify its assets away from coal as part of a new strategy to “enable the transition to a low-carbon economy”.

Second, in Australia, which is the world’s biggest coal exporting country, a very significant court decision was handed down in the state of New South Wales, which for the first time prevented a company from developing new mines because its investment was not considered consistent with the Paris Agreement.

Photo by Dominik Vanyi on Unsplash

Third, China, which consumes half of global coal production and accounts for a similar share of global imports(1), announced that it was going to cap imports of metallurgical coal from Australia, effectively blocking imports equivalent to about 10% of Australia’s annual exports to China. This decision reflects a new normal in China, which is that its domestic coal demand is now peaking, despite massive domestic production overcapacity.

(1) For more information on the global coal market, and more specifically on major coal-consuming countries, read the report “Implementing Coal Transition – Insights from case studies of major coal-consuming economies – Pathways to “below 2°C”-compatible coal transitions in major coal-consuming economies” published in September 2018 by Coal Transitions.

What does all this mean?

These events by themselves do not, of course, mean that suddenly the world is on track to phase out coal in the time needed achieve the Paris Agreement’s goals. However, it underscores the fact that, globally, the “social licence” to keep investing in, trading and burning coal is fading fast. This means that, as existing coal plants and mines expire, it is increasingly unlikely that new investments will be in coal. This has major implications for countries, sub-national governments, companies, local communities, and workers that are currently dependent on coal—they need to start urgently preparing and planning for the future beyond coal, before events overwhelm them.

Secondly, the German coal exit decision highlights the central importance of an inclusive and just transition for all citizens as the condition sine qua non for phasing out fossil fuels. Germany’s coal exit compromise is not just a phase-out schedule. It puts workers, affected coal mining regions and affected power consumers at the heart of the strategy. For instance, it includes agreement to ensure that every single workers currently in the coal sector will have the opportunity, if not retiring, to find alternative and equivalent quality employment. It also includes agreement on funding for regions to develop alternative economic activities, building on existing initiatives, such as Lausitzlab. A key lesson from Germany’s agreement is that the transition from fossil fuels cannot succeed unless it is based on a high degree of stakeholder consensus and offers a desirable, post-coal future to the most vulnerable in society.

A third take away from all this news is that the technological alternatives to coal are much more advanced that they were even 5 years ago. This allows other countries who are planning or contemplating new coal plants to think again. Once it was argued that wind and solar were too expensive and variable. But costs, both of production and small scale storage solutions, have fallen massively in the last 5 years. Experience with integration of variable renewables in the OECD is showing that solutions exist to enable much higher shares than previously thought. The proof is that major industrialised economies like Germany are phasing out coal—while also phasing out nuclear power—in favour of very high goals for renewables; and that China is capping coal consumption in absolute terms. These are industrial powerhouse countries who would not do this if it put their economic model in jeopardy.

What needs to happen now?

Nonetheless, much remains to be done. While the world on aggregate is moving away from coal, specific countries, such as Japan, India, Vietnam, Indonesia, Mongolia, Turkey, Bangladesh, Pakistan, South Korea and some parts of Africa are still building new coal plants. Policymakers in many developing countries are keen to support industrialisation. In this context, they are often offered coal energy investment packages—often by Chinese SOEs—containing cheap finance, technology, construction, skills transfer, and the promise of “cradle-to-grave” services. These packages tend to outcompete renewables in the current market, even though alternatives to coal could be just as cheap, fast to build and reliable under the right (but missing) policy conditions. But thus far, high climate ambition countries and multi-lateral development banks have not yet been able to work with recipient countries to provide a sufficiently attractive alternative, at the scale required, to crowd out new coal.

Meanwhile, major coal users need to up their efforts to phase down coal. China has capped coal use, but now needs to begin planning a progressive phasing down of its coal assets over the coming decade. India needs to set a peaking date for coal use, like China has done, and do more to improve the investment environment and market integration policies for renewables and alternative fuel use to coal in industry. South Africa needs to find a way to make the most of its current power generation crisis: it needs to avoid a contentious debate over privatisation and instead focus on using the bailout of bankrupt state power monopoly Eskom onto a pathway out of coal and into cheaper renewable alternatives. Other major exporting countries like Australia, South Africa or Colombia, and key coal states of the USA, are still grappling with a fast changing reality. In general, policymakers in these countries have not yet fully grasped the economic and social risks associated with continuing to assume that the future will be like the past.

Most of all, however, workers, citizens, and other stakeholders and their governments need to come together to agree on a strategy for the transition out of coal , oil and gas in line with the goals of the Paris Agreement on climate. Anything less leaves them open to a transition that is speeding up and could quickly get ahead of them, leaving it too late to catch up.

Top photo by JMK [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)%5D

Coal Transitions in Poland – a debate

How can the Polish coal sector meet Paris Agreement goals? Outcomes from our workshop in Katowice

Prepared by IBS, previously posted on www.ibs.org.pl

“What might feasible, fair and consistent with the Paris Agreement (below 2ºC) pathways look like?” was the key question of the workshop on the Polish coal sector organised by Climate Strategies (CS), Institute for Structural Research (IBS) and Institut du Développement Durable et des Relations Internationales (IDDRI). The workshop took place in Katowice, Poland, at the Central Mining Institute on Monday, 10th December 2018.

Photo: Adrián Lauer

The workshop, which aimed to provide possible transformation pathways in the Polish coal sector and their impact on the country’s labour and energy security, focused on these crucial questions:

  • How will the transition in coal sector affect coal production and consumption?
  • What social and economic consequences could such changes entail?
  • How should the transition challenges be reflected in strategies for the Polish coal sector, workers, companies and communities?

Andrzej Błachowicz (Climate Strategies) opened the event and moderated the first session. The first part of the workshop was dedicated to presentations of studies on Polish and international cases of coal transitions presented by researchers and specialists, with a focus on analysing the transition’s implications on the labour market in Poland. For the second part, invited Polish stakeholders commented on the research input and discussed feasibility of proposed pathways and solutions.

Snapshot of policy initiatives on coal transitions from around the world

Oliver Sartor (IDDRI) presented the main results of the Coal Transitions project. Presenting cases from Germany, South Africa, India, China and Australia, Sartor argued that transition in the coal sector is already happening in many countries, striving at reduction in use of this raw material. He also highlighted the decrease in the cost of renewable energy, its broader use and the creation of jobs related with clean technologies. Sartor argued that transition in accordance with the Paris targets is possible if long-term planning is applied, in order to avoid risks related with energy security, growing energy prices and reduction of employment in mining.

Photo: Adrián Lauer

Coal transitions pathways – challenges and opportunities for Poland

Jan Witajewski-Baltvilks and Aleksander Szpor of the Institute for Structural Research (IBS) presented the results of the report on the transition of the mining sector in Poland. Szpor reminded the group that the energy sector, dominated by coal-based electric generation, is the main source of CO2 emissions in Poland. He explained that the different varieties of extracted coal have different uses in the Polish energy sector and the economy at large, as well as in particular regions.

Jan Witajewski-Baltvilks presented studies on possible transition pathways to achieve ambitious goals of emission reduction whilst minimising layoffs in the mining sector. According to the analysis based on the optimal energy mix model (MOEM), the scenario of reducing emissions down to the level expected by the European Commission is feasible if energy efficiency is improved, emissions in transport are reduced and the share of renewable energy sources in energy generation is increased.

It should be noted that this scenario would not involve lay-offs in mining on a large scale. The sector would be phased down gradually, over the next 30 years. This means that the drop in production would go hand in hand with the decline in employment resulting from retirement of miners. However, a prerequisite for this scenario is to reduce inflow of new workers to the sector. Research by the IBS has explored alternative job markets, arguing that many jobs have been created and will continue to be created in the processing industry and in construction (→presentation).

The coal transition in Poland: lessons from the past

Ian Walker, a lead economist at the World Bank, presented the results of a study on transition of the Polish energy sector, with a particular focus on the labour market (→ presentation). Using models that forecast the decline of coal in energy generation and assesses past, present and future impacts on the; economy, labour markets and local development in mining regions, the study shows that future transition processes will have significantly less noticeable negative consequences for the population of mining regions in comparison with the economic transition of 1990s. This is due to, among other factors, a more diversified economic structure, with greater chance to adjust workers’ capacities to employers’ needs.

Walker also agreed with the IBS researchers on the role of ageing workforce in a smoother transition by natural attrition (retirement) in the sector. However, unskilled mining workers will disproportionately suffer from the negative impacts of the transition, hence the need to put particular focus on this vulnerable group (e.g. in retraining schemes) so as to ensure a just transition process.

Stakeholder roundtable

After the presentations, representatives from Polish regional governments, trade union, environmental NGOs and research centres took part of a roundtable, moderated by Daniel Kiewra (IBS).

Photo: IBS

Jakub Chełstowski, the Marshal of the Silesia Region, argued that the schemes developed by the previous local government are reasonable and heading in the right direction. He noted that dialogue and consultations with local organisations and communities are important to him, recognising the challenges that non-state local actors face when trying to reach large institutions, something learned from his own experience as a long-term member of a NGO. The Marshal noted that the previous mining transition programmes in Poland were not entirely successful and only the most recent one, started in 2016, constitutes a real chance for reconstruction of the Polish mining sector.

Kazimierz Grajcarek, the former Chairman of the mining and energy section of the “Solidarność” trade union, noted that restructuring of the mining sector in Poland should not be focused solely on Upper Silesia, because transition processes also resulted often in personal tragedy for people involved in the hard coal sector in other Polish regions. Grajcarek reiterated the unfair competition faced by the Polish mining sector, mentioning that imported coal often originates from countries where mining involves violation of human rights, dismal working conditions, low environmental standards and dumping in trade.

Krzysztof Stefanek, Vice-Chairman of PZZ Kadra, indicated that a credible alternative for coal reduction is needed. Decision-making in this area should not be rash and requires thorough analysis and consultations.

Izabela Zygmunt, a representative of the Polish Green Network, argued that local governments and organisations are often excluded from dialogues on energy transition in Poland, even though there is evidence of positive impacts from their inclusion. As an example, she indicated the Ziemowit Mine in Imielin, where decisions on extension of the period of operation of mines are being currently consulted with local organisations and population. Their active involvement in discussions has an effect, at least for the time being.

Stanisław Prusek, Director of GIG, stated that the estimated costs of transition significantly exceed the region’s capacity. Referring to the results of research conducted by the Academy of Economy in Katowice, he argued that costs are driven up by the high number of workers employed in mining and in dependent sectors. He noted that an abrupt phasing out of mining might result in loss of income from the revenues of the mining sector and its dependent industries.

Piotr Lewandowski, President of the Board, IBS, noted the changing circumstances in relation with the challenges of transition in the 30 years’ history of the process. Policies reducing the use of inefficient technologies related to coal mining and consumption are also leading to development of new industries in alternative technologies. As a consequence, new jobs will emerge in these new sectors, replacing disappearing jobs in mining and dependent sectors.

Life after coal: the renaissance of Bilbao

By Matt Finch, business and energy analyst

Bilbao is an ancient city in Spain, dating from the 14th century. It has always been a major trading post and for most of the 20th century it was known for its iron, steel, and shipbuilding industries. The raw energy to fuel these industries came from coal. Whilst the coal was not directly mined in the area, the port of Bilbao was heavily rebuilt to unload coal, and railroads were laid to take this directly to the iron and steel factories.

As a result, Bilbao was very reliant on these heavy industries. When these industries in Bilbao went into decline (for a number of reasons, including the oil shock in 1973 and a major flood in 1983), the city was hit hard. Around 60,000 manufacturing jobs were lost between 1975 and 1995, with a further knock-on effect to the local services industry.

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Old Bilbao shipyard (photo: Teresa Avellanos, Flickr Creative Commons Licence)

To turn itself around, the ‘Strategic Plan for the Revitalisation of Metropolitan Bilbao’ was agreed between various political leaders, including the city mayor, and launched in 1991. This plan was deliberately not aimed at an individual segment of the city’s population or industry sector. Instead, the plan sought to renovate the look and feel of the city, whilst transforming the city from an industrial centre into a knowledge and services centre. Two agencies were launched: Bilbao Metrópoli-30, and Bilbao Ría 2000. Both agencies are owned by the Basque and Spanish governments, but are wholly independent from them. This setup was partly to ensure that decisions should be taken for the long-term.

Perhaps the most striking symbol of rehabilitation is the landmark Guggenheim Museum. Since it opened in 1997, it has been calculated that the museum has attracted an average of 700,000 extra non-Basque visitors to Bilbao per year. Where the museum is sited is as a direct result of Bilbao Ria 2000’s planning.

Despite some local opposition to the museum, the political leaders of the time decided to go ahead with the plan. They saw the museum as a central tourist attraction and symbol of the long-term rehabilitation of the city, and their long term planning proved to be a winning strategy. 

Bilbao Guggenheim

The Guggenheim museum in Bilbao (Photo: Flickr/Thierry llansades, Creative Commons Licence)

Both Bilbao and Leipzig themselves, and the transitions described thus far, share similar characteristics. Both cities preceded the industrial age, and so have reinvented themselves a number of times out of necessity. Whilst coal came to be a major part of city life in both cities, there were other industries which could be leant back on. Both cities also suffered a ‘shock’ (German reunification and the 1983 flood) that forced them to think about the future. That thinking led to long-term strategic decisions.

Both cities also benefitted from access to finance. Bilbao could directly raise and spend taxes, whilst Leipzig benefitted from ‘Aufbau Ost’, the set of government policies that were applied to post-reunification East Germany. Finally, both cities recognised that their future was in a more service / knowledge based economy, and put in place long-term policies to achieve that goal.

These two examples prove that, handled well, transitions can be positive. It’s clear that there are lessons to be learned. The Coal Transitions project is currently taking an in depth look at historical transitions in the UK, US, Spain, Czech Republic, Poland and the Netherlands, with a view to promoting knowledge and understanding of positive transition policies.

(Edited by Germana Canzi)

 

Urban life after coal: Leipzig

By Matt Finch, business and energy analyst

Many countries are reducing the amount of coal burnt in power stations while coal mines are closing down in some parts of the world. However, there are thousands of people worldwide whose livelihood is threatened by this reduction, not to mention the millions of dollars invested in assets that will become stranded.

So far, there is a popular perception that the transitions away from coal that have happened so far (many of which were not related to climate policy) have not been handled well in socio-economic terms. The first part of the Coal Transitions research project – which will see a major report published in the Spring of 2017, accompanied by a series of national case studies – sets out to not only examine what has really happened. But it also aims to learn lessons from these transitions, in the hope that they can be applied to the upcoming global transition away from coal and form part of a dialogue between the research community, industry, governments and stakeholder on this.

However, in advance of the results of the academic research, we will examine here some interesting examples of positive transitions that should be considered, with a specific focus on urban areas. The first blog of the series will look at Leipzig in Germany. The second, to be published next week, will look at Bilbao in Spain.

Leipzig

The City of Leipzig existed long before coal was mined heavily in the region, and with the phase-out of coal mining now proceeding in the region, will obviously exist long after coal has gone.

The city has long been a cultural and economic powerhouse. Indeed, the University of Leipzig opened its doors in 1409, and the first German railroad was opened between Leipzig and Dresden in 1839. Open pit coal mining began in the area to the south of the City in 1924, and rapidly expanded. Following the division of Germany after the second World War, the city quickly became the industrial centre of the German Democratic Republic (East Germany). Out of 300,000 employees, 100,000 were employed in heavy industry, including coal mining.

However, German reunification hit the City, and the local coal mining industry, hard. Since West German coal mine safety and environmental standards were higher, many of the mines were closed very soon after 1990. Across East Germany as a whole, 113,000 people were employed in East German lignite mines, but this shrank to 26,000 just five years later. In the space of a decade following 1989, the population of Leipzig decreased by 100,000.

Leipzig run down building

Run down building in Leipzig. (photo: Flickr/Joerg Schubert Creative Commons Licence)

The situation has however now reversed. Leipzig is now Germany’s fastest growing city, and the coal mines themselves have become tourist attractions, albeit in another form. The area the mines inhabited is now known as ‘Neuseenland’ – literally “new lake land”, and the lakes are systematically arising, phoenix like, from the ashes of the old coal mines. This is no accident.

A wholly-owned government company – Lausitzer und Mitteldeutsche Bergbau-Verwaltungsgesellschaft mbH (LMBV) – was set up with the express purpose of rehabilitating the mines. Furthermore, local (private) businesses mean that the lakes are carving out their own personalities – Lake Markkieeberg, formerly part of the Espenhain mine and one of the first lakes completed includes an artificial whitewater canoe and kayaking slalom course. Lake Kulkwitz is known for its scuba diving. Lake Cospuden has developed a reputation as the ‘party lake’. The redevelopment of the region is not planned to finish until 2050.

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Leipzig Triathlon on Lake Kulkwitz (photo: Flickr/Felix Abraham Creative Commons Licence)

Not only did LMBV rehabilitate the mines, it also had another purpose. It initially employed 20,000 employees within East Germany – 20,000 jobs that were brand new and provided a route directly back into employment for at least some coal miners. This combined well with the German government’s policy of offering ‘adjustment money’ to miners who were over 50 and found themselves out of work. This money is paid for up to 5 years and equals €13,500 per year on average. In effect, this payout was a form of early retirement payment.

The second major notable policy that rehabilitated Leipzig was the deliberate attempt to develop ‘clusters’ in central Germany. Clustering involves deliberately trying to bring together universities, research institutions and business players in the same sectors into the same geographic area. This is named ‘Regionenmarketing Mitteldeutschland’ (Regional Marketing for Central Germany).

Sunset over Leipzig

Sunset over Leipzig (photo: Polybert49, Flickr, Creative Commons Licence) 

The City’s economic recovery plan focused on five sectors; healthcare and biotech; logistics; media and creativity; automotive and suppliers; and energy and environment. Companies were offered incentives to move to the region, and the needed infrastructure was put in place. For instance, Leipzig airport was expanded so it could operate 24 hours a day, and this encouraged DHL and Amazon (amongst others) to base their cargo operations there. This is reflected in the City’s unemployment figures: the rate has dropped from 21% in 2005, to 11% in 2012.

As Leipzig is proving, transitioning away from a coal-focussed economy towards something else need not be accompanied by negativity and pain. However every place is different and other places will obviously not have the unique combination of factors and characteristics that have made Leipzig a success. Our next blog will look at the City of Bilbao, Spain, which has also undergone a successful transformation of itself, to see if we can identify the commonalities between the two transitions.

(Edited by Germana Canzi)