By Chris Hansen, Morgan D. Bazilian, and Kenneth B. Medlock III
The energy transition is underway. While this transition is occurring across many dimensions of the energy value chain having a dynamic impact on consumers and producers alike, it is often simply described as a move to a cleaner, low- or zero-carbon system. The contours of the pathway remain unclear, but certain aspects are already visible. The dramatic rise in solar and wind power generation in electricity systems and the rise of electric vehicles are occurring in multiple economies across the globe (see figure 1) as is an increased focus on energy efficiency. Closer to home, a dramatic and distinct move away from coal in power generation is occurring (see figure 2), displaced largely by low cost natural gas as well as wind. While the environmental impacts of this transition are desirable, it carries with it mounting concerns around how economically displaced communities will cope.
Figure 1: Global Wind, Solar and EV Growth (BP Statistical Review, 2019)
Figure 2: US Power Generation by Energy Source (Energy Information Administration)
Almost every presidential hopeful in the Democratic party has issued a plan to tackle climate change that includes expanded closures of coal power plants, and many have goals aimed at zero coal use in the US energy system within the next decade. However, few, if any, of these plans has considered how precisely to deal with the local economic and social impacts.
At the national level, policy supporting such a transition has not progressed substantively. However, what has emerged and been well-documented is the leadership of states. For example, at the end of May, Colorado’s Governor signed a package of 14 bills into law. The bills originated from the state’s House and Senate and run the gamut addressing energy efficiency, coal phase-out, electric vehicles, and renewables.
While the set of laws do not address every aspect of the energy sector, they do represent a very ambitious portfolio. The overarching goal of reducing carbon emissions sets the frame, with pieces addressing social, economic, regulatory, and technical aspects of Colorado’s energy transition. In many energy-climate plans introduced over the past decade, the sole focus has been the power sector; so, the Colorado approach, which includes transport and infrastructure, is a step further.
Still, as with all laws, the details are important because the consequences will manifest through implementation and with future regulations aimed at achieving the stated goals. Addressing the impact on coal communities is paramount. The issue of job loss and local economic degradation due to the closure of coal mining operations and/or power plants is not new. For instance, the Obama Administration addressed the issue in its POWER + Plan, and a recent paper discusses the magnitudes of possible job losses and other financial impacts to communities historically tied to the coal industry.
The Colorado bills that focus on the implications of a coal phaseout are contained in SB-236 and HB-1314, which create a plan for the phase-out of coal by addressing the financial impacts of closing coal plants for ratepayers, utilities, and the communities in which these plants operate. The HB19-1314 notes: “Coal provides more than half of Colorado’s net power generation. There were approximately one thousand three hundred workers employed in Colorado coal mines at the end of 2018.” Its goal in addressing such magnitude statewide is summarized as, “Colorado must ensure that the clean energy economy fulfills a moral commitment to assist the workers and communities that have powered Colorado for generations.”
SB-236 authorizes the CO Public Utilities Commission (PUC) to issue ratepayer-backed bonds to securitize the remaining value of uneconomic inefficient coal plants for utilities that plan to retire these units before the end of their planned life. Because these bonds are AAA-rated, they could save approximately $40 million per $100 million of residual value of each coal plant retired. These savings are then available to reduce ratepayers’ bills. Moreover, the PUC can issue a finance order, after stakeholder consultation, to use a portion of the savings to aid towns who will be losing a large employer and payer of property taxes with the closure of these coal plants.
To further ensure that no community is left behind in this energy transition, HB 1314 creates a new institution called the Just Transition Office within the Department of Labor. It also sets a precedent and model for other labor transitions as it includes specific requirements for utility workforce transition plans to be put in place. In addition, benefits to workers (such as wage differential benefits and training programs) and community grants form two pillars that are essential in recognizing the implications of removing jobs from communities that are dealing with economic malaise.
Overall, this series of Colorado bills serve as mechanisms for achieving the emissions reductions goals set forth in HB 1261—namely, reducing 2025 greenhouse gas emissions by at least 26%, 2030 greenhouse gas emissions by at least 50%, and 2050 greenhouse gas emissions by at least 90% of the levels of statewide greenhouse gas emissions in 2005. Importantly, these goals are ambitious and important markers for how local action can contribute to a greater good. That stated, in designing local policy measures it is imperative that states not simply stop with a destination or target; rather, it is imperative that policies also be the guideposts for developing a detailed roadmap for arriving at the stated goal.
As more states take the lead at a time of significant energy sector transition to address issues specific to their circumstance, their collective action can lead to substantive impacts thereby creating a solid foundation for reaching national goals and perhaps setting a precedent for other regions and countries as well.
Note: The contents expressed herein are the authors’ views alone and do not reflect the views of their respective institutions.
Chris Hansen is a Colorado State Representative and co-founder of the Colorado Energy and Water Institute. Previously he was a Senior Director at IHS.
Morgan Bazilian is Professor of Public Policy, and Director of the Payne Institute at the Colorado School of Mines.
Ken Medlock is the James A. Baker III and Susan G. Baker Fellow in Energy and Resource Economics, and Senior Director of the Center for Energy Studies at Rice University’s Baker Institute.