The cost of phasing out coal - Quantifying and comparing compensation costs of coal phase-out policies to governments

Sammanfattning: To reach internationally agreed climate targets, it is especially important to phase out coal-powered electricity generation in favour of low-carbon technologies. Several governments have pledged to phase out coal power. However, coal phase-out is hindered by resistance of negatively affected workers, companies and regional governments. To reduce such resistance and to increase fairness within the transition process, some governments pair coal phase-out pledges with compensation schemes for affected actors. The costs of such schemes may make coal phase-out unfeasible or too expensive as a climate mitigation measure. These costs have not been investigated so far. This thesis conducts a comparative analysis of Germany, Slovakia, Greece, Finland, Spain and Canada. It quantifies avoided emissions and compensation costs of each coal phase-out pledge and compares compensation cost per avoided ton CO2 emissions across all countries, similar to a marginal abatement cost curve (MAC). Compensation cost per unit of avoided emissions is higher in Germany, Slovakia and Spain, and lower in Canada, Finland and Greece. Depending on the context of each country, different factors drive compensation MAC: for instance, whereas costs in Finland arise mainly to compensate district heating companies for additional expenditure to replace coal with low—carbon technologies, the Spanish government mainly compensates coal-dependent regions and coal workers. More generally, the thesis contributes to more accurately accounting the costs of decarbonization to governments and thus advancing the understanding of the political feasibility. For instance, considering that several measures need to be implemented simultaneously to decarbonize electricity systems, governments need to bear costs of these measures simultaneously. Compensation costs to phase out coal power is part of these costs. Depending on the financial capacities of governments, this may negatively affect the feasibility of decarbonization.