The Financial Challenges of Phasing Out Coal

DEVLHON Consulting Deciphers: The Financial Challenges of Phasing Out Coal to Meet Global Climate Goals

Energy transition is at the heart of global concerns today, particularly regarding the reduction of CO2 emissions to limit global warming to 1.5°C by 2050. In this context, DEVLHON Consulting is focusing on the financial and technical challenges associated with the closure of coal-fired power plants, a major source of CO2 emissions.

The Need for a Rapid Coal Phase-Out

According to the International Energy Agency (IEA), to meet the 1.5°C climate target, it is imperative to cease all coal-based electricity production by 2040. Coal represents the largest source of CO2 emissions, making it a priority for decarbonization policies. However, the early closure of coal-fired power plants poses numerous financial and technological challenges, particularly regarding stranded assets and the replacement with low-carbon energy sources.

The Costs of the Transition

One of the main conclusions of the study is that 70% of the current coal-fired power plant capacity needs to be shut down immediately to comply with the 1.5°C scenario. This closure would result in stranded assets worth $842 billion globally. Replacing this capacity with low-carbon energy sources would require an initial investment estimated at $4.5 trillion, accompanied by debt financing costs reaching $3.1 trillion. In total, the energy transition to coal-free electricity production could cost $8.4 trillion.

Potential Long-Term Savings

Despite these high initial costs, the transition could generate significant long-term savings. Coal-fired power plants have much higher operational costs due to the need to supply fuel and pay for CO2 emissions. In contrast, low-carbon technologies, while requiring significant initial investment, have significantly lower operational costs. Over time, the net operational gains from replacing coal-fired power plants with low-carbon alternatives could amount to $3.8 trillion, offsetting nearly half of the total transition costs.

Conclusion

For the transition to low-carbon energy to be financially viable, it will be crucial to reduce financing costs and increase carbon pricing. In this context, DEVLHON Consulting will continue to closely monitor the developments of this critical transition and provide in-depth analyses of its financial and environmental impacts.

Source : https://www.banque-france.fr/fr/publications-et-statistiques/publications/haute-tension-financer-la-voie-vers-la-sortie-du-charbon