A massive scale up of renewable energy generation, system-wide improvements in energy efficiency and incentives is needed to reduce coal emissions, says a new report from the International Energy Agency (IEA).
“Coal in Net Zero Transitions: Strategies for Rapid, Secure and People-Centred Change” provides comprehensive analysis of what it would take to bring down global coal emissions rapidly enough to meet international climate goals while supporting energy security and economic growth and address social and employment consequences of the changes involved.
A massive scale up of clean sources of power generation, accompanied by system-wide improvements in energy efficiency, is key to unlock reductions in coal use for power and to reduce emissions from existing assets, highlighted the IEA.
The report also stated that governments can provide incentives for asset owners to adapt to the transition as favourable economics for clean electricity generation, on their own, will not be enough to secure a rapid transition away from coal for power generation.
If nothing is done, emissions from existing coal assets would, by themselves, tip the world across the 1.5 °C limit, the report said.
In a scenario in which current national climate pledges are met on time and in full, output from existing global unabated coal-fired plants falls by about one-third between 2021 and 2030, with 75% of it replaced by solar and wind.
This decline in coal output is even sharper in a scenario consistent with reaching net zero emissions by 2050 and limiting global warming to 1.5 °C. In the Net Zero by 2050 Scenario, coal use falls by 90% by mid-century.
An important condition to reduce coal emissions is to stop adding new unabated coal-fired assets into power systems.
New project approvals have slowed dramatically over the last decade, but there is a risk that today’s energy crisis fosters a new readiness to approve coal-fired power plants, especially given the IEA report’s finding that around half of the 100 financial institutions that have supported coal-related projects since 2010 have not made any commitments to restrict such financing, and a further 20% have made only relatively weak pledges.
Coal plants are often shielded from market competition, in some cases because they are owned by incumbent utilities, in others because private owners are protected by inflexible power purchase agreements.
IEA’s analysis shows that outside China, where low-cost financing is the norm, the weighted average cost of capital of coal plant owners and operators is around 7%.
Refinancing to bring this down by 3% would accelerate the point at which owners recoup their initial investment, clearing a path for one-third of the global coal fleet to be retired within 10 years.