Why should the G7+EU pay for coal phase out in their emerging counterparts?

Publishing date
17 June 2024
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jeromin nl

The European Union’s greenhouse-gas emissions have been on a downward trend for about 15 years now, though the decline is happening too slowly. In contrast, emissions in emerging market and developing economies (EMDEs) continue to rise. Unless these countries significantly accelerate decarbonisation, global temperature rises will be impossible to contain within 1.5 to 2 degrees Celsius above pre-industrial levels. A critical step is replacement of coal with renewable energy as fast as possible. It has already been shown that this would serve the economic interests of advanced countries, even if they had to pay for it in full.

In a policy brief published this week, Patrick Bolton, Alissa Kleinnijenhuis and I extend this analysis in three ways.

First, we show that without financial support, EMDEs will generally not have an incentive to exit coal, as they will obtain only a small share of the economic benefits of the associated emissions reductions. Advanced country support is thus necessary for EMDE coal exit.

Second, the net benefits of financing the coal exit of EMDEs (except China) are positive, even for the G7 (or G7 plus EU) alone.

Finally, the fiscal costs of financing the coal exit in EMDEs (without China) are modest as a share of G7+EU GDP: about 0.3 percent of GDP per year, assuming public-sector participation of around 25% in renewable energy investment costs through blended finance.

These findings create a strong case for much greater financial support for the energy transition in developing countries than is currently promised in the Just Energy Transition Partnerships (JETPs) rich countries have established with South Africa, Indonesia and Vietnam. JETPs should be scaled up, with enough money to pay for coal closures and the social transition of coal communities, with funding conditional on EMDEs taking specific steps to phase out coal.

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About the authors

  • Jeromin Zettelmeyer

    Jeromin Zettelmeyer has been Director of Bruegel since September 2022. Born in Madrid in 1964, Jeromin was previously a Deputy Director of the Strategy and Policy Review Department of the International Monetary Fund (IMF). Prior to that, he was Dennis Weatherstone Senior Fellow (2019) and Senior Fellow (2016-19) at the Peterson Institute for International Economics, Director-General for Economic Policy at the German Federal Ministry for Economic Affairs and Energy (2014-16); Director of Research and Deputy Chief Economist at the European Bank for Reconstruction and Development (2008-2014), and an IMF staff member, where he worked in the Research, Western Hemisphere, and European II Departments (1994-2008).

    Jeromin holds a Ph.D. in economics from MIT (1995) and an economics degree from the University of Bonn (1990). He is a Research Fellow in the International Macroeconomics Programme of the Centre for Economic Policy Research (CEPR), and a member of the CEPR’s Research and Policy Network on European economic architecture, which he helped found. He is also a member of CESIfo. He has published widely on topics including financial crises, sovereign debt, economic growth, transition to market, and Europe’s monetary union. His recent research interests include EMU economic architecture, sovereign debt, debt and climate, and the return of economic nationalism in advanced and emerging market countries.    

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