It is 2022 and there are still 172 coal plants representing 226GW of operating capacity in the US. According to the latest climate science, every single one must be offline by 2030, but while the country has retired 358 plants already, there are still far too many planning to run decades beyond what the science says is acceptable – and time is running out.
Now, thanks to the Inflation Reduction Act (IRA), the Biden administration has more than $250bn in loan guarantee authority dedicated to retiring and replacing fossil fuel assets sitting at the US Department of Energy (DOE) alone. There is even more potentially available thanks to a possible $360bn from a new national green bank or the $9.7bn the act provides the US Department of Agriculture (USDA) to support rural cooperatives to purchase clean energy. Compare that with the mere $150bn the US coal fleet is actually worth and suddenly it looks like getting coal offline by 2030 is a real possibility. So what would it look like if the administration actually did it?
Building a national Clean Replacement Program
Any credible approach begins with certainty about the direction of travel. In the US that means a new national goal to finance the retirement and replacement of every coal plant in the power sector well before 2030. Because while the structural decline of coal may be evident to anyone paying attention, moving beyond coal has never been the explicit policy goal of the US and it needs to be in order to manage this transition. With the next round of international climate negotiations coming up, there is no time like the present to let the country, and the world, know that the US means business.
With a new national goal in place, the administration then needs a way to execute on the goal leveraging the financial tools embedded in the IRA. That means a new publicly financed entity aligned with principles for ensuring public dollars benefit the public, not investors, to guide our efforts. That entity – call it the Clean Replacement Program (CRP) – would work with the White House to give it credibility and ensure interagency coordination given all the sources of money available to those looking to gracefully retire their ageing plants. The CRP could be a new joint venture of, say, a national green bank, the DOE and private investors with direct dollars of its own to deploy, or it could just as easily act as a broker driving deals to USDA, the green bank, the DOE and any private investors attracted to such deals.
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Importantly, the creation of a CRP opens the ability to structure coal retirement finance going forward. It could, for instance, announce and run reverse federal auctions to generate price discovery, engender competition for scarce dollars and incentivise early closure. Reverse auctions have been successfully utilised in California and other clean energy markets to ensure competitive bidding that drives prices down and limits the need for public subsidies and finance. By running those auctions tied to a fixed amount of money that declines over time with a clear end date – 2028 – when a second-term Joe Biden leaves the building, the CRP can also accelerate the inevitable shift beyond coal by pushing utilities to capture those dollars before they are gone.
Tying the sunset date to the end of a second Biden term in 2028 has political benefits too. It gives the Biden administration the ability to say it transitioned the country beyond coal on its watch – a climate achievement surpassing that of any administration in history, one they could announce, and be applauded for, at COP33, wherever that may be.
While far from ubiquitous, there are international examples of programmes like this the administration could learn from. The most high profile is Germany’s, where the government had one valuable tool the Biden administration does not: binding legislation forcing coal plants to retire. That obviously made the industry much more interested in taking advantage of financial incentives and other carrots to close their coal plants. The lesson from Germany the Biden administration can take to heart is that money can grease the skids, but you only go so far without a credible threat.
Even without a carbon tax or formal clean power standard, the administration could still provide that threat by continually ratcheting air and water pollution requirements that force coal plants to clean up their act. It is these mounting costs that have largely driven retirements to date – not carbon taxes or climate regulations. The more the administration would make clear the country will not tolerate coal plant pollution and will force plant owners, not the public, to bear the brunt of those costs, the more likely coal plant owners would be to take advantage of the financing opportunities provided by the CRP to ease this transition.
Of course, the politics of rewarding dying industries that have fought climate and environmental justice goals at every turn is fraught. That is why the new federal financing programme should declare that no transaction will be blessed that is not explicitly tied to clean energy replacement and local community benefits. It should also make clear that those clean energy resources explicitly rule out gas, otherwise the administration runs the risk that the coal retirement programme makes the job of getting unabated gas out of the power sector by 2035 – just five short years later – even harder than it already is.
Making coal history
This is of course just one way the Biden administration could take advantage of the litany of financial tools available under the IRA to move the country beyond coal. Whatever approach the administration takes, if it embraces the goal of moving the nation beyond coal and delivers with the financial tools provided by the IRA, it would be a transformative legacy. No president who came before, nor one who will come after, could lay claim to such a transcendent climate achievement.
What is more, the achievement would reverberate across a global community that has made important strides but is still struggling to move beyond coal at the speed required. That momentum was affirmed at the Glasgow climate conference last year, where more than 200 countries committed to phase down its use. However, delivery on that goal is not guaranteed, and momentum, as always, can be fleeting. The US can breathe much-needed life into that global conversation and send a powerful signal to the country, and the rest of the world, that the US is finally ready to lead.
How delicious the irony that a bill negotiated and watered down by coal baron Joe Manchin may lead to the retirement of all US coal plants – including his own. If that is the legacy of this bill, it will be a powerful one.