Building capacity to help Africa trade better

What are the costs of “the end of coal”?


What are the costs of “the end of coal”?

What are the costs of “the end of coal”?

On 3 November, the UK released a report stating that 190 participants across the world had committed themselves to:

  • end all investment in new coal power generation domestically and internationally

  • rapidly scale up deployment of clean power generation

  • phase out coal power in economies in the 2030s for major economies and 2040s for the rest of the world

  • make a just transition away from coal power in a way that benefits workers and communities

It later emerged that only 40 countries had signed. Nonetheless, the announcement sets one thinking: coal is a major source of GHGs, but what will be the cost of this sort of policy? Path dependency is the obvious problem; it costs money to shift from one dominant technology to another. It helps if the new one is much more cost efficient; the world managed to switch from the horse to the motor car, blacksmiths retrained as mechanics, and filling stations popped up around the world. But for now fossil fuels, at a private level anyway, still make economic sense.

There is also a less obvious cost, but one potentially just as serious. Nobel economist John Hicks described Income as the time derivative of Wealth. When a country’s wealth, its stock of assets, is increasing, its true national income must be positive. But if its wealth falls, the national income is negative. Among the assets of any country are its mineral reserves. When nations agree to stop using coal, they effectively depreciate their coal reserves and with them their wealth, and National Income falls. Currently coal provides nearly 40% of the world’s electricity. Countries that signed the pledge will still be able to mine it, trade it, and use it as a chemical feedstock. But their decision to stop burning it, means that much of their steam coal, that yesterday was an asset, by 2050 could just be a rock.

So countries have agreed to impoverish themselves, but will the world’s atmosphere feel the benefit? Two important points to ponder: a) as one of the commentators put it, “the Ukrainian government may have signed, but the Ukrainian mineworkers’ union at home has not,” b) China, India’s and the USA are jointly responsible for 72% of world coal use. None of them as was among the signatories. Without their participation, is the agreement likely to have any meaningful effect? The title of the official press release “End of coal in sight at COP26” may be a little optimistic.

About the Author(s)

Anthony Leiman

Emeritus Associate Professor of Economics, University of Cape Town

Leave a comment

The Trade Law Centre (tralac) encourages relevant, topic-related discussion and intelligent debate. By posting comments on our website, you’ll be contributing to ongoing conversations about important trade-related issues for African countries. Before submitting your comment, please take note of our comments policy.



Email This email address is being protected from spambots. You need JavaScript enabled to view it.
Tel +27 21 880 2010