Four lessons to ease Asia’s energy transition

Moving to a low-carbon economy may be complex, but it doesn’t have to be painful.

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At the recent COP26 Summit, India, backed by the People’s Republic of China, rallied for weaker language in the declaration to phase out coal.

As coal production and use trends down worldwide, some major economies in Asia and the Pacific are signaling for a slower exit.

The People’s Republic of China and India lead coal production and consumption in Asia, totaling 558 GW in total energy output per day. Indonesia, South Korea and Viet Nam add 54 GW more.

Commitments to international agreements, together with environmental and health concerns, have helped push countries towards less carbon-intensive systems.

However, concrete fears of inadequate energy supply still ring loud across Asia and the Pacific, where unequal development persists.

Two of the region’s biggest coal exporters for example, Australia and Indonesia, remain unresolved on how to move to low-carbon economies.

Policy-makers in Indonesia are strongly against premature mine retirement without evidence that stakeholders will not lose money as a result of the low-carbon transition.

Australia has taken the same stand, refusing to close mines prematurely unless there is compensation and social protection measures for mine workers and their communities.

While Australia’s contribution to world CO2 emissions from fossil fuels is negligible, the country’s mining sector has left a legacy of public health issues.

Relevant Sustainable Development Goals

Global experience shows that coal transition need not be painful. While the PRC has called for a slower exit, in 1998-99 the country closed 33,000 township and village coal mines that failed to meet safety standards and were causing considerable environmental damage.

This resulted in a 300-million-ton reduction in annual coal production, providing the roots for a 30-year national coal phase-out plan starting this year.

Energy transition may be complex but some countries are already making progress.

Here are four lessons from international first movers.

1) Well-managed mine closures. Carefully planned and well-managed mine closures are paramount. In any transition, established networks, once-secure jobs and formerly vibrant communities will be disrupted. As such, a carefully planned and well-managed transition is vital, including policy interventions at various levels.

France, where coal production ceased entirely in 2004, is a good example. France approached the transition process systematically, closing mines one-by-one, and with the foresight to prepare social protection programs that dampened the socio-economic fallout.

2) Comprehensive social protection. Wide-ranging social protection is crucial to manage massive labor cutting effectively. Germany, for example, provided a menu of social protection policies that included early retirement, retraining, transferring employees to other state companies and resettling foreign workers, together with aggressive initiatives to aid existing businesses, including salary and housing subsidies as well as health benefits.

Active labor market policies, combined with income support and auxiliary services, can help reduce frictional unemployment while developing human capital.

Mine closures may also have a greater impact on women facing increased domestic responsibilities and the potential for gender-based violence. The chances of a drastic change in household dynamics is higher as unemployed family members migrate in search of work.

3) Coal commissions and coal mine closure agencies. A coal commission or coal mine closure agency is critical for setting deadlines to phase out coal, while overseeing the complex transition to a low-carbon economy.

In 2018, Germany established a Coal Commission with wide representation from stakeholders in the community. The commission devised a strategy on ethically phasing out coal-fired power plants by 2038, including targeted assistance to coal-dependent regions and the industry’s 32,800 workers.

France’s Mine Closure Agency backed its coal phase-out strategy with adequate funding to develop alternative industries and enhance infrastructure in areas where coal employment is being lost, while providing compensation (pension, employment and requalification programs) for displaced people and coal companies.

4) Laws that support the transition. Legislation is a powerful tool to decrease coal production and consumption. New and specific legislation can initiate the search for cheaper and sustainable energy alternatives, as well as supporting technology, in the transition process.

Laws are also necessary to oversee mediation among affected stakeholders, re-examine land use management and redirect regional development.

The People’s Republic of China, for example, developed an Action Plan for the Prevention and Control of Air Pollution that supported greener energy sources. The country promoted new activities to replace coal as a source of livelihood while also introducing geothermal and natural gas as energy alternatives.

The mine closures may have been abrupt in the PRC, but the government caught up with legislation that supported laid-off workers. This eventually led to a wider acceptance of mine closures.

Asia and the Pacific is at the threshold of an energy transition process, whether the region is prepared or not.

For many countries, commitments to international agreements were key in accelerating the rejection of coal and a broad acceptance of alternative energy sources.

Beyond political will and pressure however, effective transition also requires planning, wide-ranging policy reforms (including multi-structural social protection) and progress on renewable energy technology, to move forward.

With careful planning, a smooth and successful transition is possible.

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Aimee Hampel-Milagrosa

Economist, Asian Development Bank

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