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.