A recent Guardian article ventures that a group of wealthy investors would need to invest $50 billion today to buyout and shut down all the private and public coal companies in the US (the Guardian). Alternatively, the cost to the investors would be far less than $50 billion if the investors were to purchase all coal output starting in 2020. This buyout could occur as a charitable grant from one or more investors—similar to the Nature Conservancy business model. This one-time investment would yield financial benefits for years to come, not to mention its ability to rescue shareholders, owners, and workers from a quickly sinking ship. The health and environmental benefits alone from closing coal have been valued at $100 – $345 billion per year according to a National Academy of Sciences Report and a Harvard Medical School Study (the Guardian). So why not just shut down coal at the source?
A critical reader will of course retort that if all of coal is bought out and shut down, what will fill the capacity gap? Just as the consumption of coal is expected to decline, electricity generation from renewables is expected to increase. EIA predicts that as the coal industry shrinks amidst tighter federal regulations and declining popularity, renewable generation (wind, hydro, biomass, geothermal, and solar) is expected to grow by more than 7% (EIA). Perhaps most importantly, consumers are demanding a cleaner replacement. According to a recent survey, 85% of consumers want to take advantage of low-carbon technologies (Bloomberg New Energy Finance). The replacement for coal must be cleaner and cheaper. A good deal is the best way to ensure that consumers will move to the new platform quickly—and bring the private sector with them.
The good news is that as coal plants disappear across the country, an alternative can and will appear. A “Cash for Coal” Program works through a system of reverse auctions at which a green bank would provide funding for companies to close coal plants and low-cost financing to replace plants with clean sources of generation. A green bank is a publicly funded financing institution that provides low-cost, long-term financing support to clean, low-carbon projects by leveraging public funds through the use of various financial mechanisms to attract private investment. Through this program, the green bank will purchase coal plant facilities in a reverse auction process from bidders offering the lowest price per ton of CO2 emitted—a technique effectively utilized in the spectrum auctions since the 1990s. Then bidders can use green bank financing, coupled with cash received from the sale of the coal plant to construct or purchase replacement electricity. Thanks to the availability of low-cost financing to ease the transition, replacement power generation can maintain wholesale electricity prices at $0.05-0.08/kWh. With these low prices, encouraging consumer pull for clean energy is easy.
Now is the time to make this happen. From the coal-industry perspective, $50 billion today is worth much more than $50 billion in 2020—which cannot even be guaranteed given the declining strength of the coal industry. Given that US monthly coal production has been declining since 2012 (EIA), coal output in 2020 will likely be worth much less. Isn’t now the time to sell?
Alternatively, investors may choose to purchase all coal output starting in 2020, which would leave sufficient time to bring clean alternatives to scale so the price impacts do not hurt consumers. Isn’t this what renewable energy providers want—restricted coal supply, increased demand for clean alternatives, and no negative repercussion on the consumer? The impact on the price of coal as a result of a full or partial buyout will be no worse than the impact of increased regulation by strict federal regulations. Once the coal industry is bought out and shut down at the source, innovative technologies and financial mechanisms will fully step in to offer a cleaner and cheaper replacement.