Coal mining in Indonesia

What would the world gain by replacing coal with renewable energy?

Attempts by international negotiators to phase out coal globally have failed, most recently at COP26 in Glasgow. And now, as a result of the war in Ukraine, even countries that had pledged to move away from coal and towards renewables have been revising their stance.

The most commonly cited obstacle to phasing out coal is the cost. In a new study co-authored by Patrick Bolton, Professor of Finance and Economics at the Centre for Climate Finance and Investment, a systematic quantitative analysis of the claim that replacing coal with renewable energy would be too expensive is undertaken.

According to the research, the key flaw with this argument is that it ignores the benefits that come with lower carbon emissions. The study shows that replacing coal with renewable energy would generate net social benefits equivalent to 78 trillion USD.

Examining the cost of replacing coal with renewable energy, the paper includes the capital expenditure costs of building a renewable energy capacity that is equivalent to that from burning coal as well as the costs of compensating coal companies for their economic loss. The present value of the social benefits generated by switching to renewable energy is calculated by estimating the size of avoided emissions from phasing out coal and by applying a carbon price to those emissions.

The results of this analysis send a simple but powerful message: phasing out coal is not just a matter of urgent necessity to limit global warming to 1.5°C. It is also a source of considerable economic and social gain. The net economic benefits from ending coal are so large that a general policy implication from this research is that efforts should be redoubled to achieve a global agreement to phase out coal as soon as possible.

The research was undertaken with Tobias Adrian of the International Monetary Fund (IMF) and Alissa M. Kleinnijenhuis of the Stanford Institute for Economic Policy Research and the Institute for New Economic Thinking at the University of Oxford.