Financing the Coal Transition

RMI’s report, Financing the Coal Transition, shows how financial mechanisms can complement policy and regulation to help achieve a rapid, equitable, and smooth coal transition.

The economics of power generation are shifting rapidly in favor of clean energy, challenging coal’s long history as a mainstay of economic development throughout the world. However, much more work needs to be done to transition the existing coal fleet in line with climate and development goals.

The privileged place coal has occupied in power generation for over a century has entrenched complex barriers—from the way that grids have been built to the incentive structures within electricity systems—that prevent markets from catching up to the economic trend toward clean energy. In the absence of solutions to address these barriers, the costs of uneconomic coal will fall largely on local communities through direct costs and unpriced impacts on local health and the environment.

The global community needs new solutions to address the social and economic complexities of the coal transition while responding to the urgency of the climate challenge. One set of solutions currently under development are the innovative financial mechanisms designed to support the transition from coal to clean energy.

This report helps make sense of the various financial mechanisms proposed to date, and models the impacts of using different financial mechanisms to transition existing coal power plants. While it finds that financial mechanisms have the potential to generate wins for both the climate and communities, it also recognizes the risks of using finance to support the coal transition. To manage these risks, RMI proposes five key principles to guide the design of credible financial mechanisms.

Five key principles to guide the design of financial mechanisms for coal transition

Financial mechanisms can be a transformational tool in coal transition efforts—but only if implemented well. Ultimately, the devil will be in the detail as to how financial mechanisms are designed and governed to meet the critical needs of all stakeholders and help deliver a rapid and smooth pathway to a climate-safe future.