“Coal is dead.”

These are not the words of a Greenpeace activist or left-wing politician, but of Jim Barry, the global head of the infrastructure investment group at Blackrock — the world’s largest asset manager. Barry made this statement in 2017, but the writing has been on the wall for longer than that.

Banks know it, which is why they are increasingly unwilling to underwrite new coal mines and power plants. Unions and coal workers know it, which is why they are demanding a just transition and new employment opportunities in the clean economy. Even large diversified mining companies are getting out of the business of coal.

The only ones who seem to have remained in denial are President Donald Trump and non-diversified mining companies like Westmoreland Coal. The Denver-based firm made a bad bet in 2013 when it purchased five coal mines in Alberta. Now it wants Canadian taxpayers to pay for its mistake.

Alberta’s coal phaseout

Three years ago, Alberta’s New Democratic Party (NDP) committed to what some have described as “the most ambitious climate plan in North America to date.” In addition to the development of an economy-wide carbon price, the province is phasing out coal-fired power by 2030. Without the infrastructure to export coal, the climate plan has also resulted in a de facto phaseout of local thermal coal mining.

To ensure support for the plan, major utility companies in the province were provided with “transition payments” to facilitate the switch to gas and renewable energy. Westmoreland did not receive a government handout, because coal mining companies have no role to play in the energy transition. The company, which filed for bankruptcy protection for its investments in the United States in October, doesn’t think this is fair.

NAFTA’s investment chapter

Because Westmoreland is an American company, it can rely on the North American Free Trade Agreement (NAFTA) for protection from “unfair” treatment. NAFTA allows a foreign investor to use a process known as “Investor-State Dispute Settlement” (ISDS) when government action harms its business in some way.

ISDS allows foreign investors to bypass local courts and bring claims for monetary compensation to an international tribunal. The system is not unique to NAFTA; it is found in other trade agreements like the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) and thousands of bilateral investment treaties (known as Foreign Investment Promotion and Protection Agreements in Canada).

ISDS is hugely controversial. Concerns have been raised by a wide range of actors about both the process of ISDS, and the way the system can infringe on the sovereign right of states to regulate to protect public health, human rights and the environment.

More than 900 ISDS cases have been launched by investors since the early 1990s, including 27 against Canada that have so far cost Canadian taxpayers at least $315 million. There is one ongoing dispute that concerns a ban on gas fracking in Québec, but the Westmoreland claim is the first brought in relation to a policy explicitly designed to combat climate change.

Westmoreland argues that part of the reason it invested in Canada in 2013 was to diversify its holdings in response to regulatory risk. At the time, the Obama Administration was taking action under the Clean Power Plan to reduce the reliance of American utilities on coal.

The company’s failure to anticipate similar regulatory action by its northern neighbour is remarkable.

Life after coal

A key battleground

If governments respond appropriately to the urgent warning issued by the Intergovernmental Panel on Climate Change (IPCC) in October, efforts to phase out fossil fuels will have to ramp up considerably — and quickly. We should expect the industry to fight these efforts through a variety of means. ISDS may become a key battleground.

The U.S.-Mexico-Canada Agreement (USMCA or CUSMA, depending on who is talking about it), which may replace NAFTA (it has been signed, but has not been ratified), does not retain the process of ISDS between Canada and the U.S.

While this is good news in the long run, some have suggested that there will be a “rush of filings” before access to ISDS for already established investors expires (three years after USMCA comes into force). Canada will also be exposed to claims from investors under other agreements such as the CPTPP and Canada-European Union Comprehensive Economic and Trade Agreement (CETA).

Other countries, particularly poorer nations, face an even higher risk of ISDS claims and have far less resources available to fight them. It is notable that big oil companies have retained some access to ISDS against Mexico in USMCA, after lobbying hard for it.

A climate of fear?

If Westmoreland’s case proceeds to arbitration, it will not have direct implications for Alberta’s climate policy. An investment tribunal cannot require the provincial government to reverse the coal phaseout; it can only award the company damages. Westmoreland is asking for US$470 million. It is the federal government, rather than Alberta, that would have to pay compensation to Westmoreland if the company’s claim was successful. However, Ontario did agree to pay the award in a recent NAFTA case.

What is more concerning than any potential payout is that Westmoreland’s suit could hinder efforts to implement similar plans to combat climate change in other jurisdictions.

“Regulatory chill” is a phenomenon that has been observed in several jurisdictions around the world. A notable example is the decision of the New Zealand government to delay the introduction of legislation to require plain packaging of tobacco products until Australia won its ISDS case against the tobacco company Philip Morris International. This delay of regulatory action — out of fear of expensive litigation — may have cost lives.

As recent forest fires and floods have demonstrated, delays in action to combat climate change can also be deadly.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Alberta’s decision to phase out coal-fired power by 2030 represents a big shift (coal currently generates just over half of Alberta’s electricity), so it’s not exactly surprising that the phase-out has led to a fair bit of debate.

Throw in a complex lawsuit, threats of increasing power prices and a resurgence of the “clean coal” myth, and it becomes nearly impossible to figure out what’s actually going on.

Often missed in the conversation is the fact that 12 of the 18 coal-fired power plants in Alberta would have had to shut down by 2030 anyway under federal regulations introduced by former prime minister Stephen Harper.

Quite a lot of other facts are getting lost in the noise as well, so DeSmog Canada delved into the research to come up with these six handy facts.

Fact #1: Electricity Bills Aren’t Going to Skyrocket Because of the Coal Phase-Out

First things first: in late November, the Alberta NDP introduced a cap on default power prices at 6.8 cents per kWh, beginning in June 2017 and running until June 2021. (For reference, default rates are currently between 4.1 and 4.4 cents/kWh, depending on location.)

So yes, rates may increase a little, but there’s simply no way that retail prices can triple, or even double, as some have been suggesting.

Secondly, there are different elements of electricity bills: the cost of electricity and transmission or distribution costs.

Alberta has been anticipating an increase to the cost of electricity since 2014 (before the NDP was elected) because of improvements to the province’s transmission system and unsustainably low prices in recent years — and not as a result of the coal phase-out.

“Those cost increases are independent of coal phase-out,” Binnu Jeyakumar, program director of the Pembina Institute’s electricity program, told DeSmog Canada.

Many critics of the phase-out point to Ontario — which has seen a doubling in retail prices — as an example of what might happen.

But Jeyakumar notes the main reasons for the drastic price increase in Ontario were the payments for deferred grid infrastructure investments, and the costs associated with the refurbishment of nuclear plants.

“Those are massive, massive capital investments that we’re not looking at in Alberta,” she says.

Plus, the price of renewables has dropped significantly since the Ontario experience, and the process by which Alberta is procuring power is “much more competitive,” says Jeyakumar.

Fact #2: Coal Jobs Were Already Threatened by Shoddy Economics

Many small towns have expressed serious fears that the phase-out will kill hundreds of jobs.

In 2016, coal town Grande Cache, asked the provincial municipal affairs minister to consider dissolving the town after losing 750 — about one-third — of its jobs.

For Grande Cache, like many other coal-reliant towns, the issue of low coal prices had become existential.

Here’s the thing: this is not a new issue.

Coal prices — for both thermal and metallurgical coal — have plummeted in recent years as jurisdictions all over the world shift away from coal. Renewables have increased in viability, economic growth has slowed and natural gas prices have dropped, all factors in the collapse of coal that pre-date the announcement of Alberta’s climate plan.

“Planned coal phase-out — with the introduction of renewables and energy efficiency — is actually better for labour because it allows you to plan for support for your workers,” Jeyakumar says.

“The alternative is you have these coal plants that could come offline just purely based on economic reasons. It’s the coal plant’s owner and operator who’s making that decision. That gives the workers and province less time to plan for how they’re going to transition these workers into the new economy, or how they’re going to compensate those workers.”

Of course, such a reality don’t necessarily make the decline of coal towns any easier.

But many new jobs will be created in the transition to the “30 by ’30” target, which will see 30 per cent of electricity generated by wind, solar, geothermal and biomass by 2030 (which itself will replace two-thirds of the lost generation from coal). There will also be an increase in job opportunities as predicted by Green Party leader Elizabeth May, who stated in 2015 that “we need an army of carpenters, electricians and contractors going out to plug leaky buildings.”

These new jobs will exceed those lost through the coal phase-out. Pembina has calculated that there are 3,150 jobs directly associated with coal in Alberta. But between 12,600 to 35,000 jobs will be created between now and 2030, thanks to the province’s renewable energy program.

Alberta has committed $195 million to help coal and Indigenous communities with the transition to renewable energy. And on January 9, it was announced that Alberta Labour would be conducting a “Coal Communities Survey” to identify worker skills to help the department plan the transition. The government has also formed an Advisory Panel on Coal Communities.

Fact #3: Billions of Dollars Will Be Saved in Healthcare Costs (And Fewer People Will Be Sick)

The coal phase-out isn’t just about cutting greenhouse gases. It’s also about reducing air pollutants, including sulphur dioxide, nitrogen oxides, fine particulate matter, ozone, cadmium, mercury and lead. These can lead to serious respiratory and heart diseases.

The Canadian Association of Physicians for the Environment estimates that coal leads to 107 premature deaths, 80 hospital visits and 4,862 asthma-related sick days in Alberta every year, costing the province around $300 million.

Over the next 20 years “the phase-out can get us up to $3 billion in healthcare savings for the province,” Jeyakumar says. “If you look at the whole balance sheet — you add up the health cost savings and the potential for labour transferring from renewables and energy efficiency — the province actually comes out way ahead than it would be without the coal phase-out.”

Fact #4: Yes, Coal Companies Will Be Compensated, but Out of Carbon Tax Revenues

There’s been plenty of debate about whether the six coal units that are being shut down before schedule should receive compensation from the province.

A 2015 publication from Pembina concluded that four of the six units would receive a “fair return on capital” by 2030, undermining the case for compensation.

It argued that “investors in merchant units built after 2001 were well aware the long-term operations of these facilities would be subject to change of law related to climate policy,” but it might still be helpful to pay off the owners of the two most recently constructed units — Capital Power and TransAlta’s Genesee 3 (2005) and Keephills 3 (2011) — to maintain an attractive investment climate.

“As a matter of law, I think it’s crystal clear the province didn’t have to pay a cent,” agrees Nigel Bankes, chair of natural resources law at the University of Calgary, in an interview with DeSmog Canada. “It’s just new regulation. No one is entitled, unless specific commitments have been made, to a particular environmental regime to continue from the time they made an investment.”

Alberta’s government did indeed decide to provide “transition payments” for the six coal units that would otherwise operate past 2030, representing “approximate economic disruption to their capital investments.”

In late November Alberta announced it will pay Capital Power, TransAlta and ATCO a total of $97 million per year beginning in 2017, totalling $1.36 billion by 2030.

All money for the “transition payments” will be diverted from revenues from Alberta’s carbon tax on large emitters (the Specified Gas Emitters Regulation, to be replaced in 2018 by the Carbon Competitiveness Regulation). In other words, none of it will come from general revenues.

“It does seem to me the province struck a reasonable balance on this,” Bankes says.

Six Handy Facts About #Alberta’s Coal Phase-Out https://t.co/7yptHiHmLb #ableg #yyc #yeg

— DeSmog Canada (@DeSmogCanada) January 17, 2017

Fact #5: ‘Clean Coal’ Was Never a Viable Option

The previous federal regulations introduced in 2012 would have required 12 of the 18 coal-fired power plants in Alberta to shut down by 2030. The six remaining would be forced to close in later decades, with one as late as 2061.

That is, unless coal-fired units could reduce their emissions to 420 tonnes of carbon dioxide per gigawatt hour (gWh), or about as efficient as natural gas. The only way to do that is via carbon capture and storage (CCS), which either requires an extremely high carbon price or government investments to justify.

The retrofitting of SaskPower’s Boundary Dam coal-fired power plant with CCS technology is an example of how expensive this can get. The revamp cost of $1.47 billion effectively doubled the cost of power from $0.06 per kilowatt hour (kWh) to $0.12 per kWh from the facility.

Plus, since its opening, Boundary Dam has been plagued with issues, including frequent shutdowns, a massive leaking storage tank, cost overruns and equipment failures in August and November; the latter, a compressor failure, resulted in only 49 per cent of potential volume capture (the monthly target is 65 per cent).

In Alberta’s plan, there’s no entertaining the notion of CCS, which would likely require billions in payouts to coal companies and a long-term increase in power bills.

Rather, the government has acknowledged there are far more economically and environmentally viable options, and introduced clear policy direction to see them come to fruition. The province has stated that “where it is economically viable,” coal-fired power stations will be converted to natural gas power plants.

Jeyakumar says the best and cheapest alternatives to coal remains renewables (two to three times cheaper) and energy efficiency (up to six times cheaper).

Fact #6: Alberta’s Approach Guarantees Phase-Out is Permanent

By far the most controversial element related to the coal phase-out has been the province’s lawsuit filed in regards to “Power Purchase Agreements,” or PPAs.

The story is a confusing one, but here are the basics: Alberta deregulated its electricity system in 2000, which allowed for power purchase agreements to be signed directly between electricity generators and buyers. A public balancing pool was created to handle the PPAs that weren’t sold off. All was well.

Except there was a small and little-known clause that was introduced by the Energy and Utilities Board only five days prior to the auctioning of the PPAs. In short, the clause ensured that buyers had the ability to transfer the PPA back to the public balancing pool if any government decision was deemed to make the agreement “more unprofitable” (rather than just “unprofitable,” as the original wording had allowed for).

That clause remained dormant for more than 14 years but now, with the introduction of Alberta’s economy-wide carbon tax, the clause is being used by four PPA buyers to terminate contracts — a move that has the potential to cost the province $2 billion by 2020.

The details are confidential, but Bankes says they’re going to “split the difference,” with the Alberta government reimbursing the companies for the estimated cost of the carbon price, while the companies pay an “anticipated calculated cost associated with the market risk” that accounts for the lower electricity prices.

The province has negotiated a confidential settlement with all but one company: Enmax, the city of Calgary’s utility company.

What this whole process has ensured, interestingly, is that no government in the future can bring back these phased-out coal-fired power plants, because the contracts have been absorbed by the balancing pool and subsequently terminated.

The good news is ten megatonnes of annual emissions will be permanently cut, Alberta’s air will be cleaner and the province will be one step closer to a building an electricity system for the 21st century.

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It’s a sentence that feels weird to write: by 2030, Alberta will have shuttered the 18 coal-fired power plants that currently generate around 55 per cent of the province’s electricity, with two-thirds of that power replaced by renewable sources.

The stunning move was announced as part of Alberta’s climate change policy framework that was released on Sunday. According to the government, only 12 of the 18 coal-fired power stations would have been phased out by 2030 under the previous arrangement.

The immediate health benefits of such a move are tremendous.

Kim Perrotta, executive director at Canadian Association of Physicians for the Environment (CAPE), says that coal accounts annually for an estimated 107 premature deaths, 80 hospital visits and almost 5,000 asthma-related sick days in Alberta, costing the province around $300 million.

Prior to the government’s announcement, over 40 organizations — including the Alberta Medical Association and Asthma Society of Canada — made a joint call for an accelerated phase-out on health grounds.

“We see the air quality benefits that are fairly immediate that would be felt by the people in Alberta,” Perrotta says. “But we also want to reaffirm that as an organization run by physicians, we actually believe climate change is the public health challenge of the century. So we think this is a huge win for public health in terms of the the immediate benefit for Albertans but also for the long-term benefits for public health around the globe.”

Coal is responsible for 17 per cent of Alberta’s greenhouse gas emissions and six per cent of emissions nationwide.

While a faster ramp-down of coal would have been possible, that likely would have lead to a great proportion of power generation coming from natural gas, says Dan Woynillowicz, policy director at Clean Energy Canada.

“So I think it’s a good approach that’s going to lead to a significant amount of renewable electricity generation in the province and a diverse supply of electricity,” Woynillowicz says.

Under former regulations, TransAlta’s Keephills 3 could have stayed open until 2061, which is when the federal government’s flaccid half-century phase-out plan would have neutered the plant.

Coal-related Job Losses and Disputed Compensation

To be sure, not everyone’s happy about the decision. The mayors and reeves of 30 Albertan municipalities signed an open letter to Premier Rachel Notley prior to the announcement noting the phase-out will likely come at the cost of jobs and tax revenue.

The mayor of Hanna — the same town which exported Nickelback — reiterated that argument on Tuesday, suggesting the loss of 200 jobs coming with the closure of the local coal mine and power station will be “devastating.”

Woynillowicz acknowledges such concerns, noting that institutions like NAIT, SAIT, the University of Lethbridge and Medicine Hat College are already offering training in the renewable energy sector.

“That’s going to create all kinds of new investments and job opportunities in the province,” he says. “The government is committed to ensuring that for workers and communities that transition occurs as smoothly as possible. We’ve got the capacity to train the workforce we need so I think there’s definitely opportunity there.”

Read more about Alberta's coal consumption: Alberta's First NDP Climate Victory May Have Nothing to Do With the Oilsands and Everything to Do With Coal

Some coal power plant owners have argued they will deserve some compensation from the province due to the forced phase-out. However, a recent report authored by Tom Marr-Laing and Ben Thibault for the Pembina Institute contended that a great majority of power purchase agreements were struck with coal operators before the deregulation of the electricity market in 2001 and that the “Effective Life of the Unit” — guaranteeing a “fair return on capital” — would be completed by 2030 for all but two plants.

As a result, Marr-Laing and Thibault concluded in the report that 16 of the 18 stations can be retired without the need for compensation. Marr-Laing says in an interview that many of the older plants will receive between a six and 10 per cent return on equity, which constitutes a “heck of a return.” However, compensation may be required in the cases of Capital Power’s Genesee 3 (built in 2005) and Keephills 3 (built in 2011), even though a phase-out has been discussed for upward of 20 years.

“We actually don’t owe them anything, technically, but it may behoove us in Alberta to say some form of compensation may be appropriate for those two units rather than simply saying ‘tough, you lose a billion bucks,’ Marr-Laing says in an interview. “It sends a useful signal to the new investors we want to come to the table to invest in renewable energy and gas that there’s an example of having being treated fairly, at least.”

Controlling Prices During the Transition

The potential rise in electricity costs is yet another factor that’s received plenty of attention. Plenty have pointed to Ontario — which has experienced spiking rates in recent years — as an example of why the transition won’t work.

But Woynillowicz says the Ontario comparison is unjustified considering the need for the province to upgrade its grid infrastructure and refurbish nuclear plants. He says that Alberta may be entering the renewable energy market at the exact right moment, given plummeting prices for technology and the presence of increased competition between different developers. Alberta’s new energy efficiency program could also help reduce costs for electricity and heating, counterbalancing any price increase.

But Woynillowicz also stresses it’ll be very important for the government to keep Albertans up-to-date on what’s happening with the revamp of the system.

“I think we need to avoid a situation, to the extent we do see increases [in cost], that isn’t just attributed to renewables,” he says. “The reality is it’s a relatively aging power system that’s going to need upgrading regardless. The government and Alberta Electricity System Operator and renewable electricity developers are going to have to ensure they are very open and transparent in terms of how the electricity system in Alberta is evolving and being willing to discuss that. They can’t just put the policy in place and just stop talking about it.”

At this point, Alberta is by far the largest consumer of coal in the country, although Saskatchewan and Nova Scotia are also high consumers of the dirty fuel.

The next steps on the national and global stage will be determined in Paris. But plenty is happening on the provincial stages, too: Manitoba is potentially rolling out its cap-and-trade program, Ontario has announced a comprehensive climate change strategy and Saskatchewan has committed to drawing half its electricity from renewables by 2030.

“We’re seeing other jurisdictions wanting to step up and also deliver leadership on this,” Woynillowicz concludes. “Everybody is beginning to finally recognize there’s opportunity in this: that it’s going to be a better economic strategy than lagging behind, trying to fight something that has so much momentum.”

Image: Battle River Coal Plant via Pembina Institute 

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