Institute forNew Economic ThinkingOXFORDAT THE OXFORD MARTIN SCHOOLThe Economics of Coal PhaseoutsSugandha Srivastav and Michael Zaehringer22Sept2023INET Oxford Working Paper No.2023-17€尚米000BThe Economics of Coal PhaseoutsAbstractFossil fuels are the world's greatest source of greenhouse gas emissions and must be curtailed toachieve temperature targets.Technology-specific mitigation policies such as coal phaseouts maybe required for reasons including limited success with carbon pricing,administrative ease,highsalience,and ability to tackle a range of environmental and social externalities.Coal investors andcommunities that rely on mining may resist policies that increase costs such as direct taxation.Instead,compensation for early closure may be a more politically feasible route,especially givenconcerns around achieving a just transition.Compensation decided via a negotiated approachsuffers from asymmetric information.Competitive auctions can help discover efficientcompensation payments and order of closure.However,successful auctions require considering:1.additionality and interaction with existing climate policies,2.dynamic incentives,and 3.system-wide effects and security of supply.In the absence of being able to implement an auction,strengthened incentives for scrappage and repurposing of assets could be options.Policy Insights1.Compensation for early closure may be a politically feasible alternative to "polluter-pays"policies such as direct coal taxation,carbon pricing,and cap-and-trade schemes to restricttonnage of coal.2.Competitive auctions can deliver efficient compensation payments for early coal closurerelative to negotiation-based approaches which suffer from asymmetric information.3.Supply-side policies such as retiring emissions allowances in line with the coal phaseoutcan help mitigate carbon leakage risk.4.Careful consideration around dynamic incentives,local market structure,and systemstability is needed to ensure that the design of the auction fosters competition anddelivers efficiency.5.Policy alternatives such as strengthened incentives for scrappage and repurposing of coalassets may be suited to contexts where auctions are deemed infeasible due to high levelsof market concentration.KeywordsCoal phaseouts,auctions,asymmetric information,compensation,climate policy,net zero,Germany1