Out of the black into the green? Modeling the pathways for regional coal transitions

• Dynamic model for determining the optimal coal phase-out in a regional economy, including socio-economic impacts • Optimal pathways strongly depend on global coal and electricity price dynamics • History-dependent transition outcomes: economy may phase out or remain coal-based depending on initial conditions • Systematic analysis to balance welfare and pollution: including multiple equilibria and different pathways Coal is a major contributor to anthropogenic carbon emissions and climate change. Coal mining and combustion are also leading causes of premature mortality due to local air pollution. Conversely, coal is central to many regional economies that rely on its mining, power generation, industrial use and exports. With accelerating climate change and continuously high air pollution within many coal-centered economies, the urgency for coal phase-out has become more prominent in recent years. This has put pressure on coal-dependent regional economies to implement energy transitions in a time bound manner. This paper studies optimal pathways for a coal phase-out within a small, open, regional economy consisting of a coal extraction sector, an energy sector composed of both coal-based and renewable power generation, and a final goods sector that relies on coal and electricity. Taking the perspective of a social planner who maximizes regional welfare and employing optimal control theory, we study the conditions under which coal extraction and fossil power generation are phased out, depending on preferences, cost and price structures. We also provide a systematic analysis of the dynamic processes associated with the transition out of coal of (formerly) coal-based regional economies, including the scope for multiple equilibria that may reflect stalling transitions. Our results will be relevant for regional governments in undertaking a transition away from coal in a way that safeguards regional welfare and at the same time contributes to global climate goals.