WASHINGTON DC, Nov 02 (IPS) – Report after report highlights that we are able to solely obtain the greenhouse fuel (GHG) emission reductions required by the local weather targets of the Paris Agreement if a lot of the present coal energy technology capability is retired early. To this finish, one idea that deserves higher consideration is conducting an public sale for early retirement of coal energy crops worldwide: a world coal retirement public sale. This text units out the broad outlines of how this world public sale would possibly function.
The Worldwide Power Company (IEA) has estimated that there are over 8,500 coal power plants in the world, with over 2,100 GWs of capability. Though these crops are concentrated in a restricted variety of international locations (notably China, followed by India and the U.S.), there are coal crops working in over 100 countries with over 2,000 owners.
These crops generate about 10 gigatons of CO2 emissions per 12 months, nearly 30% of the global total. This level of emissions from coal is incompatible with both the “well below 2oC” or the more ambitious ”1.5oC” temperature targets set out within the Paris Settlement.
Accordingly, local weather/improvement organizations, just like the Asian Development Bank (ADB), the World Bank, the IEA and RMI, are exploring applications to impact the early retirement of those coal crops.
However closing these crops presents two essential challenges. First, retiring these crops removes electrical energy manufacturing that many international locations depend on for his or her financial improvement … manufacturing that might should be changed with ideally low-carbon sources. Second, house owners are typically unwilling to shutter revenue-generating crops and wish monetary compensation for the returns they might forego from the untimely retirement of their asset. This text addresses this second constraint.
There are numerous regulatory mechanisms that can be utilized to push early retirement, comparable to mandating closure of crops or imposing a carbon tax or different price that makes working the plant uneconomic.
A totally totally different tack is to entice closures by paying the house owners to take action. That is the premise of, for instance, the ADB’s innovative Energy Transition Mechanism.
However what’s a good value? Maybe, nevertheless, that’s not the proper query. Relatively, at what value are the house owners prepared to shutter their crops? On condition that there are greater than 8,500 coal energy crops working with totally different technical and income traits, and over 2,000 plant house owners in various monetary conditions following distinctive company methods (together with quite a few state-owned enterprises), the reply will differ.
A way that has been utilized in this sort of context of a number of actors is an “public sale”. Whereas within the conventional context, a vendor seems to get the very best value from a number of potential consumers by an public sale, on this case, we’ve a purchaser that’s fascinated with paying the bottom value to totally different plant house owners (i.e., the sellers) for the retirement of their coal crops.
That is known as a “reverse auction”. This instrument has been used to acquire new power production, together with renewables, at low costs, and particularly within the local weather context to attract cost-effective investments that reduce methane emissions.
The reverse public sale mechanism might be used to solicit proposals from coal energy plant house owners as to the price at which they would be willing to close their plant. Conceptually, this might be achieved on the premise of MWs of put in energy technology capability. Underneath the public sale, an coal plant proprietor would supply to promote — extra particularly, to shutter — their MWs of plant capability by a hard and fast time at a proposed value.
Importantly, the local weather profit sought by the public sale just isn’t from the decommissioning of MWs of capability itself, however reasonably from the GHG emissions that might be averted by retiring that capability. Accordingly, for any coal retirement tender, it will likely be essential to estimate the extent of emissions that might be averted.
This willpower will probably be primarily based on a number of components, together with the actual plant’s effectivity, remaining operational life and different technical traits, the kind of coal used, and the quantity of electrical energy manufacturing projected to be foregone by early retirement given the facility system’s anticipated demand for electrical energy from that plant.
Tenders ought to embody adequate data to guage this stuff and, by extension, the extent of averted emissions and associated local weather profit to be produced from the proposed retirement. This, in flip, will drive how a lot the public sale purchaser must be prepared to pay for the tender.
Furthermore, as a result of it might be largely counter-productive from a local weather perspective to pay to retire present coal crops to see that cash used straight (or not directly) to construct new fossil gasoline technology, the tender by the plant proprietor would should be accompanied by an endeavor to not reinvest in new fossil gasoline technology.
As has been repeatedly defined, CO2 emissions have a world influence that’s basically unaffected by the geographic location of the emitting plant. Given this world nature of emissions, the public sale would likewise be performed at a worldwide degree as a world public sale. From India to Indonesia, from South Africa to South Korea, from Poland to Australia, any plant wherever could be eligible to take part within the world public sale.
Given this scope, a world group just like the United Nations or a multilateral improvement financial institution could be properly positioned to offer the platform for this public sale. One might think about a system the place the public sale bidding course of units out eligibility standards for tasks, the methodology for estimating GHG emission reductions, and different key bid-submission parameters.
Considerably, whereas the bidding course of could be managed on an built-in foundation, the funding and collection of winners needn’t be. Relatively, a system that enables for the matching of coal retirement consumers with particular person plant house owners might be used.
For instance, consumers and their funding might be mobilized on a plant-by-plant foundation primarily based on data submitted by the plant proprietor by the public sale course of. Certainly, many potential funders have areas of focus that would cause them to be interested in retiring coal belongings solely in sure international locations (e.g., funders fascinated with a focused set of growing international locations). The proposed public sale construction might accommodate these preferences. Furthermore, the worldwide public sale might additionally function in association with country-specific approaches.
One potential supply of funding for coal retirements tendered underneath the public sale is the doubtless massive quantities of capital to be mobilized by expanded carbon credit score mechanisms underneath improvement. Tapping into these mechanisms would possibly require establishing outlined undertaking eligibility standards, frameworks for calculating GHG emissions reductions, and related monitoring and verification techniques to allow funds for emission reductions on the time of decommissioning primarily based on a value for emission discount (“carbon”) credit.
Additionally it is essential to recall the primary constraint famous earlier, particularly that international locations, and significantly growing international locations, will want extra electrical energy to energy additional financial and social improvement. Accordingly, any world public sale to retire coal crops must be coupled with a program to fund new renewables electrical energy technology.
Local weather change is a world problem affected by GHG emissions from wherever. We have to cut back emissions from coal energy technology and that requires some program to encourage and entice house owners to shutter their crops. A worldwide public sale, performed by the United Nations or an identical worldwide group, would assist to establish alternatives the place prepared plant house owners and funders could make a deal.
Philippe Benoit has over 20 years engaged on worldwide power, finance and improvement points, together with administration positions on the World Financial institution and the Worldwide Power Company. He’s presently analysis director at Global Infrastructure Analytics and Sustainability 2050.
Chandra Shekhar Sinha is an Adviser within the Local weather Change Group on the World Financial institution and works on local weather and carbon finance. He beforehand labored at JPMorgan, TERI-India, UNDP, and the Kennedy Faculty of Authorities at Harvard College.
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