The World Needs a Cash-for-Coal-Clunkers Program

By Justin Guay. First published on Green Tech Media. 

For just 5 percent of what the U.S. has spent on its COVID-19 recovery package, it could have bought out and retired every coal plant in the world.

Instead, the U.S. coal industry is benefiting from recovery programs while the world continues to subsidise old, uneconomic coal plants rather than retire them. As we debate a green recovery, now is the time to add an important approach to our tool kit, a cash-for-coal-clunkers program, to help buy the only thing we can’t make more of: time.

In essence, we’re paying the coal industry to continue to exist as a financial zombie. Instead, we should turn those into retirement payments — in essence, a cash-for-coal-clunkers program — and put an end to this industry once and for all.

It turns out the precedent for paying coal plants to retire has already been set. In the U.S., many utilities are using financial innovations to retire legacy coal plants and replace them with clean energy. In Europe, Germany’s new coal exit law includes many avenues to compensate legacy operators, including direct payments to help grease the retirement skids. And in South Africa, a club of international donors considered a debt-for-coal-closure swap.

Policymakers are starting to innovate around financial interventions that can accelerate coal closure.

Four principles for a coal clunkers program

None of these policies are perfect. Germany’s stands out as being particularly bad due to its lack of transparency and failure to incentivize early retirement. Instead, it acts as a handout to entrenched incumbents planning to retire anyway.

We need a set of principles for a fair and just cash-for-coal-clunkers program.

  • First, such a program needs clear eligibility requirements that ensure it only pays plants to retire that otherwise weren’t planning to or will retire earlier than previously planned.
  • Second, it should use reverse auctions to generate price discovery for those that are eligible in order to ensure the public does not overpay.
  • Third, it needs to set an absolute threshold for total dollars spent, with front-loaded payments that decline over a short period of time to incentivize a race for the exit.
  • Fourth, and most importantly, if we’re going to buy them out, we need to take care of workers and communities in the process.

Under such principles, the effort could be relatively cheap. RMI and Carbon Tracker estimate that for $116 billion we could buy and retire every coal plant around the world. That’s a quarter of the cost of a cash-for-clunkers car program Senate Minority Leader Chuck Schumer has floated in the U.S., except for that price we could retire every coal plant globally, drive significantly more emissions reductions, and eliminate the top source of carbon emissions globally.

The deal is even sweeter in the U.S., where for just $10 billion — about six years of our current capacity payments — we could ensure the U.S. coal fleet is entirely offline by 2030. And not every U.S. plant will require a payment to come offline, so the total is likely to be less. Joe Biden’s climate plan includes the creation of a new national green bank that could support such a program.

A cash-for-coal-clunkers program is not a silver bullet. No one is excited to buy incumbents out. But the hard truth is that we’re bailing them out each and every day regardless, with subsidies that would make other industries blush.

It’s time our money is put to better use than keeping these zombies alive. If we’ve got to pay, let’s pay them to go away.

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