What is the significance of COP26 to coal retirement?

The energy transition is well underway and has reached a stage where free markets are supporting its course. COP26 is an opportunity for a reboot, a redesign, and a chance to remove distortions that hinder an orderly energy transition. But why?

Phasing out coal is essential to limiting global temperature increase to 1.5°C. While some countries like China have started to take steps in this direction and stopped financing new coal plants abroad, countries like India, Indonesia, Mexico, Australia and others (including China itself) are still large producers and consumers of coal, and much more needs to be done. For the world to avert catastrophic global warming, the International Energy Agency says global coal demand must fall by 98% and account for less than 1% of energy production by 2050. The rest will have to be equipped with carbon-capture technology which is yet to be successfully deployed on a commercial level. But as the global economy recovers from the pandemic, coal-fired power generation is expected to reach an all-time high by 2022.

Despite this alarming fact, not all countries agree, foreshadowing one of the main points of contention at the COP26 climate summit in Glasgow in November. India, China and Russia have all opposed a deadline for the coal phase-out. All three rely on coal for a significant portion of their energy supply. China has said its coal consumption will peak by 2025, but it remains the biggest public funder of coal projects in Africa and elsewhere.

Other important issues will also be on the table at COP26. In particular, how much more money rich countries are willing to spend to support climate action in developing countries. But if the G20 is still burning significant amounts of coal into the 2030s, the chances of future temperatures staying in the lower, more manageable range of projections will be virtually nil.

This outcome may be mitigated if the EU and the US follow through with plans to impose carbon tariffs that would put financial pressure on Chinese, Indian and Russian exporters to reduce their coal consumption. Another measure is to espouse coal power plant retirement and active renewable energy development as replacement which has been done in different jurisdictions in different forms and approaches.