The Shift From Coal To Renewable Energy: Is It Possible?

The World's Energy Transition Over the Next Few Decades May Lead to A Gain of Around USD 78 Trillion

Global mediators aren't able to settle on how to gradually replace coal, in some measure, due to the resistance to carbon taxes. Currently, even nations that were successful in abandoning the fuel are reverting to the advancement made as the Russia-Ukraine war has led to an inflation in energy prices.

The biggest bottleneck around getting rid of coal is that its replacement with renewable energy would cost a lot; however, according to new research, it has been discovered that the financial advantages would counterbalance the costs.

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By examining this significant carbon arbitrage in a technical report that estimates the expenses of substituting coal with renewables, along with the social advantages of this crucial shift, it is learnt that discontinuing the use of coal harm the climate and people can be lowered.As per calculations, the transition could generate a net gain of about USD 78 trillion by the century's end. These figures currently account for about four-fifths of the world's gross domestic product and would equal approximately 1.2 percent of the yearly international financial output in the period.

Paying For the Shift from Coal to Renewables in Order to Gain a Net Social Profit Accounting for Around Tens of Trillions of Dollars Comes as Sound Economic Logic

For concluding the size of the emissions evaded along with any possible losses from their precluding, a complex dataset on the historical and anticipated global coal production by companies was compiled on the basis of an accumulation of production at the plant level.

The projected cost of acclimating renewable sources comprises capital expenditure for the generation of new energy capacity equal to what's gone with coal, also settlement to coal companies for loss in gains when they are closed. The estimated costs do not comprise the compensation for workers affected, but this is expected to be small compared to the total revenues from the shift. Extra compensation for making the transition to renewables viable could be proposed as long as the social advantages of boycotting coal surpass the more thorough set of expenses.

Price of Carbon

The value of the shift can be assessed by evaluating the decrease in emissions from discontinuing coal usage and also by setting a carbon price to those dismissals. This allows the estimation of the financial gain from the shift. The contrast between the social benefit's value compared to the costs of replacement and settlement for neglected coal revenues creates the standard estimation of the global net gain from ultimately terminating the dependence on the fuel.

While this conventional estimate arrives with an inevitable uncertainty, considering the decade-long deadline, the immense social benefits from what could be considered a cheap insurance policy are evident: expending a premium price proposes scope for significant potential damages.

The expected gains are so considerable that the leaders of the world should seek a global accord to fund the discontinuation of coal in addition to carbon pricing or similar efforts that presently fail to offset the emission's negative impacts completely. Still, all the parameters have been chosen conservatively, including carbon's social cost. The carbon breakeven point could be more significant compared to the less conservative calculations.

As per the research, ending the use of coal should be a manageable move as it gives financial advantages from lowered carbon emissions, like evading physical harm to infrastructure due to climate change. Financing renewable energy also aids the economy's growth and proposes added advantages from innovation.

Major Benefits

Boycotting coal is not only imperative because it would aid in limiting the global temperature increase by 1.5 °C. But more importantly, the financial and health advantages are significant enough that the move should be supported by international agreements unleashing the conceivable power of capital markets.

The policy's baseline is that if the settlement was made into an agreement in order to ditch coal and if inventive financing packages could propel progressive, emerging, and developing economies correspondingly to put an end to the usage of the fuel, the total profits stemming from such an agreement would be massive.

The challenge is majorly of funding. However, in spite of the disputes that no government is able to afford such allocations and the private sector should intervene and fund renewable energy, the majority of the support can certainly come from the private sector when risks are minimised by adequate public funds through blended finance, which could indicate a 10 percent public funding.

It is considering the stakes best if the government funds 10 percent of the nation's entire costs for replacing coal with renewables if this figure is lower than its consequential social benefits with regard to more subordinate climate damages.

An Opportunity: Coupling Coal Phase-Out with The Growth of Renewables

The Levelized cost of electricity (LCOE) for the recently established renewable energy has indicated a steady decrease and, in 77 percent of cases, is cheaper in contrast to coal. This percentage will increase by 2030 to 99 percent.

The reversal of the price trajectories of coal power and renewables is vital, as cutting-out coal or stopping the production of new coal needs stepping up enough clean energy infrastructure to compensate for the phased-out capacity. The replacement of such capacities in place of the sites of the decommissioned coal power plants, meaning the repurposing of coal power plants, adds to the list of benefits as a result of renewable energy plants. One of such benefits includes allowing the reuse of land that earlier has a coal power plant, using existing interconnection lines, same employees, as well as crucial equipment assets.

Energy Shift

The best solution is Worldwide carbon taxation at the social cost of carbon. Private-Public alliances for financing coal's replacement could boost the green transition.

Economists have two distinct approaches to internalizing negative externalities. This means that companies will have to pay more costs inflicted by some damaging impact of their activity, like pollution. One approach suggests taxation or some other form of pricing to review the social cost of economic activity completely. The second approach offers an efficient social result via bargaining and employment. Undoubtedly, both of the strategies are required for combating climate change on the back of this global strategy.

By 2025 Renewables Will Catch Up to Coal as The Largest Power Source

As per IEA, the shift is an excellent example of how the recent crisis for energy can be seen as a turning point in history and a future that is cleaner and has a secure energy system.

High prices of fossil energy, as well as the concerns regarding energy supply disruptions, are primarily driving the shift towards wind, solar and other renewables.

As per IEA's forecast, wind and solar power will account for the majority stake in the expansion of renewable energy between 2022 and 2027.

Green hydrogen that is produced using a water-splitting process fuelled by renewable energy will pave the way for wind and solar power expansion, which will account for just 2 percent of renewable capacity growth.

Solar persists to be the most economically viable option for new electricity generation all over the world. Solar by itself accounts for over 60 percent of the forecasted expansion of renewable energy capacity per year during the next five years. It will likely outpace coal with regard to installations by 2027.

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The growth of renewables could be further sped up by taking measures for grid infrastructure expansion, managing policy uncertainty, as well as allowing challenges and assuring financing for developing country's projects.

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