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Strict Policies Needed to Ensure Public Benefits from Coal Plant Buyouts

While coal-plant buyouts are starting to look like essential tools in the climate crisis fight, policy-makers need to ensure that they truly benefit people and climate, and not private sector profits. 

“Coal buyouts are the hottest climate finance trend in town,” writes Justin Guay in a recent opinion piece for Canary Media, citing the recent partnership between HSBC and the Asian Development Bank (along with Citi, Prudential, and global investment colossus Blackrock) as a case in point. Guay, global climate strategy director for the Australian-based Sunrise Project, says policy-makers must be careful if the benefits of these “necessary evils” are to land in the right place.

Helping fossil companies shed their increasingly stranded coal assets may be an essential tool in weaning the world off coal, but Guay worries that “the devil is in the details—which at this point seem scarce.” To help safeguard those finer points, he offers five principles to help policy-makers navigate the “frothy reception coal buyout funds are getting from some of the biggest banks and fund managers in the world.” 

First, he urges, the profit motive should be sharply constrained by the immediate “creation of new holding companies, endowed with public dollars, leadership, and oversight, with a clear mandate for coal closure.” While a private sector entity would be hired to manage a given coal buy-out fund, “a publicly owned entity would be in the driver’s seat, and it would be calling the shots.”

Noting that some of the current cost estimates for buying old coal plants “are dramatically higher than the going rate in the market,” Guay next recommends that policy-makers “achieve market-based pricing through reverse auctions.” That approach could prevent public dollars being “used to overpay polluters.” 

Such price control is “probably the most important thing to get right,” Guay notes. He points to a recent proposed buy-back scheme suggesting that “5 GW of existing coal plants could be purchased for anything from US$1,000 to $1,800 per kilowatt,” when “recent reverse-market auctions run by the German government to buy out and retire coal plants ended with average prices of $78 per kilowatt.” Something to keep in mind, he adds, is that old coal plants likely have negative value in today’s market—as recently demonstrated in India, where “utilities are estimated to save more than $1 billion per year by shutting down old coal plants.” 

Guay’s third principle: “Don’t use public dollars to juice private returns or game carbon markets.” 

“In no world should the utilities that made catastrophically bad decisions to build new coal plants, or the private equity investors smart enough to buy them up on the cheap and demand a premium from the public for shutting them down, be allowed to hold us hostage in exchange for ‘market-based returns’,” he writes.

Next, Guay recommends “accelerating” the retirement schedule for coal plants, with interim deadlines enforced along the way. The International Energy Agency’s net-zero scenario says all coal plants must be phased out by 2030 in OECD countries, and by 2040 in the rest of the world, Guay notes. “Given that we’re trying to make this happen faster than it might without intervention, payments should be prioritized that will force coal plants to retire well in advance of those deadlines.”

“Last, and certainly not least,” he writes, policy-makers need to “ensure a clean, just replacement,” with truly clean energy (that is, not gas) replacing coal, and those thrown out of work by the plant closures retrained into good jobs.