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Key lessons for phasing out CO2-emitting coal plants from electricity sectors

Carlos Fernández Alvarez Carlos Fernández Alvarez, Head of Gas, Coal and Power Markets Division (Acting) Commentary —

The countries that have so far set targets for coal power phase-outs account for about 3% of global electricity generation

Coal power plants are the largest source of electricity generation and the largest single source of energy-related CO2 emissions, presenting a major challenge for governments seeking a path to energy systems with net zero emissions while maintaining secure and affordable energy.

The International Energy Agency is supporting governments’ efforts to cut emissions, and its Roadmap to Net Zero by 2050 identifies the phasing out of unabated coal-fired power plants (those that use coal without any technologies to reduce the CO2 emissions such as carbon capture) as a target for early action. Reaching net zero globally by 2050 would require phasing out all unabated coal-fired generation in advanced economies by 2030, and worldwide by 2040.

Since the Paris agreement was signed, 21 countries have pledged to eliminate coal-fired generation from their electricity sectors – many of them by 2030. Three of them – Belgium, Austria and Sweden – have already completed their phase-outs. The remaining 18 aim to do so at some point between this year (Portugal) and 2040 at the latest (Chile). These 21 countries represented 3.2% of global electricity generation in 2020, or 1% of total CO2 emissions. Germany alone accounted for almost half of the total.

The geographic breakdown of global coal consumption shows that the future of coal will largely be determined in major economies in Asia where electricity demand is still growing in many cases and targets for coal phase-outs have not been set.

Global remaining coal capacity distribution by age of plants still in operation, 2021

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Remaining coal capacity distribution by age of plants still in operation in selected countries, 2021

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Coal phase-out plans must take account of their social and economic impacts, and energy security

A dramatic reduction in unabated coal use is an essential feature of all scenarios that meet global climate goals, but phasing out coal can also raise challenges in terms of energy affordability, impacts on communities and security of electricity supply. Rapid and successful transitions require that these challenges are carefully managed by policymakers.

Coal power plants, which require quite high levels of upfront capital investment, have traditionally been used to provide large and steady supplies of electricity at a relatively low operating cost over their decades-long lifetimes. At the same time, more than 80% of coal consumed worldwide is produced in the country where it is used, with both the coal mining industry and coal power plants being major employers. Closing coal plants often implies shutting mines, often resulting in significant economic and social hardships in the affected areas.

The impact on the security of electricity supplies from phasing out coal plants will depend on the share of coal in each market’s electricity mix, the availability of other sources to replace it, and the rate of electricity demand growth. And the practicalities of implementing the phase-out – including the time required to complete the process – need to be identified and carefully considered.

Only a few jurisdictions that currently use coal for electricity generation have made significant progress in phasing it out. While each country has its own specific circumstances, valuable lessons from the efforts undertaken so far can be drawn for other countries pursuing similar approaches.

Our new report Phasing out unabated coal: Current status and three case studies examines three key examples for deeper analysis. The Canadian province of Ontario was the first big jurisdiction to decide upon and implement a coal phase-out policy. The United Kingdom has dramatically reduced coal use for power generation in the past seven years and will phase it out completely by 2024. Germany is by far the largest coal consumer among the countries with a phase-out date, and the presence of significant coal production in the country adds notable challenges to the process.

6 key recommendations for pursuing coal power phase-outs

Based on the experiences of these three jurisdictions, the report presents six recommendations for others who plan to pursue similar approaches. The recommendations are in line with conclusions drawn from earlier IEA reports and analyses on the topic.

The first two recommendations are aimed at ensuring that governments put people and communities at the heart of their clean energy transition plans. They are: allow sufficient time for consultation and implementation and provide support for affected workers and communities. In Germany, the Commission on Growth, Structural Change and Employment was convened to develop a consensus among different stakeholders on the transition process, with a big focus on creating new opportunities in the affected regions. Lignite coal production in Germany is still a large employer in some regions, which required specific consideration. In light of these issues, IEA Executive Director Fatih Birol in January convened the Global Commission on People-Centred Clean Energy Transitions to examine how to enable citizens to benefit from the opportunities and navigate the disruptions of a changing energy sector. Composed of national leaders, government ministers, civil society representatives and other prominent figures, the Global Commission will publish its recommendations on 26 October ahead of the COP26 Climate Change Conference in Glasgow.

Two other recommendations from our new report are related to the IEA’s foundational mission of energy security: ensure that security of electricity supply is a cornerstone of coal phase-out policies and improve the conditions for investment in clean electricity and the necessary infrastructure. In Ontario, the first phase-out deadline was set in 2007. However, the challenges of replacing electricity generation capacity and upgrading the grid forced the government to push the date back to 2009 and finally to 2014. The recent sharp increases in the prices of natural gas, coal and electricity in various regions around the world are a stark reminder of the importance of keeping energy security at the core of policy making. As recent IEA analysis has highlighted, investment in clean energy needs to grow rapidly in the coming years to ensure demand is met. This investment must cover not only the massive deployment of today’s competitive clean and efficient technologies, but also the development of the associated energy infrastructure, such as power grids. It also needs to stimulate rapid progress in innovation to ensure the technologies needed for deeper decarbonisation in the coming decades are ready in time. All of these investments are essential for well-managed and orderly clean energy transitions.

Another recommendation is to implement carbon pricing or a similar tool to give a price signal. From an economic point of view, this is the most efficient way to change trends and behaviours. In 2013, the United Kingdom launched the Carbon Price Floor – consisting of the EU Emission Trading System plus a carbon price support – as an effective tool to encourage the transition away from unabated coal. However, carbon prices or taxes often result in costs being passed on to consumers through increases in electricity and other energy prices. This has obvious consequences for businesses and people that policy makers need to address, especially to protect the most vulnerable consumers.

The final recommendation is to consider converting coal power assets. Owners, policymakers and other stakeholders should consider ways to convert coal plants into low-carbon assets. First of all, when coal plants are not operating, they are not emitting CO2. Therefore, they can provide a cheap source of reserve power capacity to the system when needed. Converting a coal power plant for such alternative uses can enable investors to retain part of the asset’s value, preserve some local jobs and continue the use of existing transmission lines. This last point is notable given that expanding power lines quickly enough to connect new electricity sources to the grid is proving to be a key challenge for clean energy progress. Coal power plants also provide other valuable services for electricity systems, such as inertia to maintain frequency within an acceptable range or reactive power to control voltage. These will be needed in the future to maintain grid stability, especially as more variable renewables feed into the grid. 

Potential roles for carbon capture and low-carbon fuels

Coal plants can be retrofitted with carbon capture, utilisation and storage (CCUS) technologies to reduce emissions, which might be particularly appealing for emerging economies in Asia, where a young coal fleet and increasing energy demand may make retiring coal plants harder than elsewhere. CCUS is a way to provide low-carbon electricity on demand, which will be necessary in net zero electricity systems. Combined with sustainable biomass, CCUS could even provide a source of net negative emissions electricity in the future.

A section of our new report presents options for converting coal power plants in a way that both softens the impact of the closures on local communities and ensures reliable electricity supplies. One notable possibility is to use low-carbon fuel, such as ammonia, in coal power plants. The IEA explored this option in more depth in a recent report, The role of low-carbon fuels in clean energy transitions of the power sector.

Phasing out unabated coal power plants is a key step on the path to a successful clean energy transition – and it is achievable. Analysis in the IEA’s recent World Energy Outlook 2021 found that unabated coal-fired power generation could be cut by nearly half globally over the next decade without raising costs for electricity consumers.

Well-managed implementation of these phase-outs can in turn build confidence in future steps in the transition to net zero emissions. We hope the practical insights of our new report can contribute to this journey.