Lessons from Countries Leading the Coal Exodus: Silos are Holding Back the Energy Transition

Coal-dependent countries around the world face two interlinked challenges: accelerating the phase out of coal to prevent catastrophic global warming, while sustaining economic prosperity and political support. As United Nations Secretary-General Antonio Gutteres recently said, keeping global warming close to 1.5 degrees requires all new coal investments to stop now, with coal phased out in Organisation for Economic Co-operation and Development (OECD) economies by 2030 and everywhere else by 2040.

Energy supply and the economic impact of the war in Ukraine have clearly made these tasks even tougher. But the war has also provided a powerful reminder of the huge strategic and environmental risks of fossil-fuel addiction. Quitting coal need not result either in economic crisis nor energy shortages. Not quitting coal will certainly lead to climate – and therefore economic – disaster.

Researchers have systematically reviewed the policies of nations well down the path of transitioning away from coal, providing guidance on what works.

Strong proactive and collaborative leadership

Governments quitting coal in a rapid, just and orderly manner have commonly employed a proactive, collaborative and well-coordinated mix of demand- and supply-side policies. Key demand-side policy levers include carbon pricing mechanisms, reducing energy consumption, and improving energy efficiency, as well as providing strong financing and infrastructure support for the rapid expansion of renewable energy. Supply-side policies such as accelerating coal industry closures through the removal of subsidies and through direct regulation, taxation and export licensing are also vital. Regulatory actions to overcome the negative impacts of coal on air quality, health and environmental outcomes often play a key role. So too do mission-oriented industry policies that drive economic renewal and job creation.

The European Union (EU) remains strongly focused on phasing-out coal by 2030. More than €80 billion (US$92.9 billion) has been allocated to strengthen skills and job opportunities in coal-dependent regions. These funds will also help draw in billions of dollars in private-sector finance for clean energy infrastructure and technology.

German Chancellor Olaf Schulz recently proposed the German coal phase-out date be brought forward to 2030. The German Coal Commission, comprising government, business and union stakeholders, has suggested that €40 billion (US$46.2 billion) is needed to support coal-dependent workers and communities.

Spain has underpinned its ambitious coal phase-out and renewable energy goals with over €250 million (US$289 million) for “just transition” contracts covering early retirement, re-employment, environmental regeneration and green industry investment, and setting employment goals and strategies.

In Australia, the new Labor government of Prime Minister Anthony Albanese has backed its upgraded greenhouse-gas emissions reduction goal with a National Energy Transformation Partnership to coordinate and integrate national and state government energy transition investments. The government also announced an AUD$1.9 billion (US$1.2 billion) “Powering the Regions” fund to assist traditional and new industries in harnessing the economic opportunities of decarbonization across the country.

The best transition plan is also a plan for jobs

The economic and job creation potential of a well-managed transition from fossil fuels to renewables is now well demonstrated. Employment in renewable energy rose to 12.7 million in 2022, an increase of over 700,000 jobs. The Paris-based International Energy Agency (IEA) has estimated more than 30 million jobs could be created in clean energy, efficiency and low-emissions technologies by 2030. “There is a growing focus on the quality of jobs and the conditions of work in renewable energies,” reckons International Labour Organization (ILO) Director-General Guy Ryder. “The increasing share of female employment suggests that dedicated policies and training can significantly enhance the participation of women in renewable energy occupations and ultimately achieve a just transition for all.”

In Germany, collaborative planning and long-term investment in infrastructure, education, environmental technologies, and cultural and service industries have been an essential foundation for economic diversification and job creation in coal dependent regions such as the Ruhr Valley. In the United States, investment flowing from President Joe Biden’s Inflation Reduction Act will create over 550,000 new jobs in industries producing renewable energy. And in Australia, renewable energy think tank Beyond Zero Emissions has demonstrated that low-cost renewable energy could create new export earnings of over AUD$300 billion (US$203.4 billion) and over one million new jobs. The challenge is ensuring those national level economic gains extend to coal-dependent regions, where workers and communities are too often left behind.

Bring workers and communities with you

Broad public support for replacing coal depends crucially on communities and workers being convinced that governments and business are genuinely committed to the creation of secure high-quality jobs. The 2015 Paris Climate Agreement asks committed countries to take into account “the imperatives of a just transition of the workforce and the creation of decent work and quality jobs in accordance with nationally defined development priorities.”

International Trade Union Confederation (ITUC) General Secretary Sharan Burrow reminds us that a “just transition will not happen by itself. It requires plans and policies. Transformation is not only about phasing out polluting sectors, it is also about new jobs, new industries, new skills, new investment and the opportunity to create a more equal and resilient economy.”

Canada strengthened support for closing all coal-fired power stations by 2030 by working closely with coal-dependent communities and providing integrated investment, infrastructure, training and employment packages. By listening closely to workers, Canada’s 2018 Coal Transition Task Force tapped deep local knowledge and built local support for its coal-exit target.

In Australia, increasing awareness of the inevitability of the closure of coal-fired power stations has strengthened support in coal-dependent communities such as the Latrobe Valley in Victoria and Gladstone in central Queensland for a far more proactive approach to creating new economic futures and opportunities.

“Local governments all over Australia in coal regions are taking the reins because they’re seeing change now,” says Amanda Cahill, CEO of The Next Economy. “We’re seeing mines that have been approved but not funded. We’re seeing early closures of power plants.” She adds: “The biggest question is, how do you diversify those regional economies? Gladstone is a really great example because there’s so many opportunities people are starting to explore. It’s not just the renewable energy…it’s what we could do with that renewable energy. It’s things like green hydrogen, it’s manufacturing renewable energy parts, it’s looking at land use differently. And this is what’s happening all over Australia.”

Understand and respect national and regional differences

Successful strategies for accelerating the just and well managed phaseout of coal need to be informed by clear understanding of the diverse economic and social histories of coal dependent countries and regions.

Countries leading the coal exodus such as the US, UK, Germany, Spain and Canada have often had access to relatively cheap alternatives. And they are able to finance new energy infrastructure and support for workers and communities in coal-dependent regions. Coal-dependent countries such as China, India and Bangladesh also need to manage rapidly growing energy demand. They face budgetary challenges in financing renewable energy and supporting regional communities. That is why developed economies have a strong practical as well as ethical case to help fund developing economies to achieve a rapid and orderly transition.

Coal exporting countries including Australia, Colombia and Indonesia also face tough challenges in generating alternative sources of export income – and overcoming the power of vested interests. There is increasing awareness in these countries, however, of the potential for low-cost renewable energy to underpin new low-emission export industries such as green steel and green hydrogen, which is considered later in this article.

Making it happen

How do nations turn the rhetoric of just transitions into reality while sustaining economic prosperity and maintaining political support? By delivering on the following:

• strong, proactive and collaborative political leadership,
• respectfully engaging coal communities and workers,
• a well-coordinated mix of demand and supply-side policies,
• transition governance authorities enabling local engagement and accountability,
• adequately funding re-employment and retraining programs,
• economic renewal and diversification policies building on regional strengths, and
• mobilizing investment at the scale required to create high-quality jobs in just and resilient zero-carbon economies.

The convergence of the climate, energy and digital sectors

Another important key to facilitating and accelerating the energy transition is the application of new digital technologies in the climate and energy sectors. But efforts to promote this convergence as a way to catalyze progress are not coordinated by any global or multilateral framework.

Credit: ITU

At the G20 Summit in Bali, Indonesia, on November 15-16, leaders committed to the Bali Compact – a set of nine principles agreed earlier by their energy ministers. At its heart is a plan to speed up the transition to renewable energy. Host Indonesia set “recover together, recover stronger” as the theme of its G20 presidency and in its preparations has been juggling the need to address the negative impacts of climate change on health and prosperity with an energy crisis sparked by the fallout from the Ukraine war and the global desire for a sustainable energy transition.

The geopolitical tensions and associated sanctions of 2022, coming on the back of the Covid-19 pandemic, mean that developed economies are having to cope with high energy prices, while many developing countries are struggling with energy security, particularly access. As the G20 lead, Indonesia has tried to allay both concerns.

One option to help do this is conspicuously absent from the Bali Compact. During its G20 presidency in 2021, Italy recognized the role of digitalization in enhancing energy security and market stability. But the role of digitalization and technology in giving a boost to the energy transition has not been on Jakarta’s agenda this year. Yet, there is no doubt that digital innovation and technology foster climate action and sustainable energy transformation. For example, automatic sensors using artificial intelligence (AI) can detect equipment failure and save energy in industrial plants and operations.

The digital economy ministers of the G20 have encouraged cooperation to improve innovation in many sectors including sustainable and renewable energy. But, for their part, the energy ministers have made little progress in encouraging the adoption of digital innovation to ensure energy security and access.

The Bali Compact highlights the urgent need to secure energy accessibility, scale up smart and clean technologies, and advance energy financing. Technology transfer and energy financing are some of the ways to ensure both energy access and energy security can be achieved. Technology transfer and access to finance are crucial, but there is not yet any framework or serious thinking about how innovation and digitalization would support those two initiatives.

The Fourth Industrial Revolution, the convergence of emerging new technologies in which everything is digitally connected, can support economic recovery. It can play a role in fostering energy access, particularly for remote areas that are not connected to the electricity grid. Digital automation also helps expedite energy efficiency and the rise of renewable energy consumption. Moreover, digital technology such as AI and blockchain can provide innovative solutions to unlocking green financing in the energy sector through their inherent transparency and traceability.

G20 nations are in a good position to adopt digital technologies, given the higher levels of broadband connectivity in the bloc (combining leading industrialized economies with major developing ones), compared with the rest of the world. But the substantial disparities in connectivity between urban and rural areas mean that stakeholders in the energy, climate and digital technology sectors will have to collaborate to ensure alignment in regulations and practices.

If these sectors remain siloed, G20 nations and indeed the world will likely miss the innovative solutions on the table to meet the current challenges of energy security, accessibility and prosperity.

Case study: The renewable promise of hydrogen

In a small room in Delft, Netherlands, a group of engineering students ponder what energy systems might look like in 2050. Across the North Sea in Stavanger, Norway, students of international relations (IR) consider how the world order might shift if there were universal access to renewable energy.

The engineers know little about geopolitics, the IR students little about energy technology. They are undertaking a green policy simulation: Each represents a fictional country grappling with the energy transition and lays out how they would deliver it, balancing the interests of their citizens with those of the world. Some of the fictional countries are dependent on fossil fuels; others are blessed with abundant renewables.

It is a useful tool to teach the complexity of tradeoffs in energy transitions and emission reductions. How could the world order shift if countries not known for renewable energy production or exports ended up dominating the sector?

The energy transition’s current darling, hydrogen, has moved from the world of engineering to politics. Governments around the world have already committed more than US$70 billion to stimulate the hydrogen industry. Hydrogen production is moving from gray – using natural gas – to blue, with carbon capture, and to green, with production by electrolysis using renewable electricity. Right now, green hydrogen is not economically viable.

Up in the clean air: Hydrogen is emerging as a promising renewable energy source (Credit: Trade and Invest British Columbia)

If not for the world running out of time to stop catastrophic global warming, we would not be talking as much about hydrogen. And in Europe at least, the electricity used to make hydrogen through electrolysis has to compete with electricity use for power purposes.

Could hydrogen become the new oil? Energy analysts predict that oil demand could peak soon after 2025, and by 2050, hydrogen could meet up to 24 percent of the world's energy needs. Considering the dominant split of energy today – oil 30.9 percent, coal 26.8 percent and gas 23.2 percent – a 24 percent share is substantial enough to affect the world order.

Yet, to work out how the geopolitics could play out, it is worth asking three questions. First, how much hydrogen will countries use? Second, how much will countries trade? And third, how fast will the change happen? Only then can you establish where hydrogen might fit in the global energy mix.

The obvious early movers are heavy industry looking to decarbonize, industrial shipping and heavy vehicles. Large power utilities are eyeing it for storage. All of these players are largely linked to the existing oil and gas industry. As countries transition to sustainable energy, oil- and gas-led economies could lose US$7 trillion by 2040, the International Energy Agency (IEA) has warned. Hydrogen could give them a lifeline to extend their business model.

Still, electricity is expected to be the energy carrier of the future, powering most other applications in a green world. Trade depends on domestic production capacity, cost differences between countries and strategic considerations. Consider mature countries that do not want to rely on electricity from their nearest neighbors. Hydrogen imports could deliver the strategic diversification they are looking for. Hydrogen simply allows for more long-distance, more flexible, trade.

An East Asian hydrogen market stretching from India to Japan and to Australia is feasible. Similar markets could develop in the Americas or between the Middle East and Europe. For countries, four scenarios are likely as sustainable energy technology evolves. With the technology, opportunities open up for export of energy, knowhow and materials:

• A fossil fuel exporter becomes a sustainable energy exporter – they win some and lose some.
• A fossil fuel exporter becomes a sustainable energy importer, a lose-lose result.
• A fossil fuel importer becomes a sustainable energy exporter, going from a position of dependence to revenue. A win-win outcome.
• And finally, the position most countries now find themselves in: A fossil fuel importer misses the opportunity and moves to being a sustainable energy importer.

It is a high-risk, high-reward scenario for governments betting on green hydrogen ahead of it being economically viable. Then again, invest too little too late and they risk wasting money while still ending up a laggard. The only certainty is that not every country will benefit equally from the transition, and those who lose out might not be the usual suspects.