What will happen to India’s coal ecosystem?
Ensuring a just transition from coal won’t be easy. It requires political commitment, finances, and careful planning
At COP26 in Glasgow, India signed a climate pact promising to “phase down” coal. But critics held India responsible for diluting the language from a commitment to “phase out” coal — a claim Delhi rejected. The argument is that since coal is the dirtiest of fossil fuels, it needs to go first, and the claim is that alternatives such as solar and wind are now increasingly available to replace coal.
But what critics fail to realise is that for India, even a coal “phase down” is an enormous undertaking. Coal currently provides over 70% of India’s electricity and over 50% of its primary energy. Millions live in energy poverty, and India’s energy demand will soar as the country urbanises, industrialises, and provides more energy services for its people and industries. Against this backdrop, India has shown climate leadership by agreeing to the coal pledge.
A coal phase down is the first step towards an eventual phase-out. Both involve a decline in coal production and use, keeping in mind India’s energy security imperatives. India will need a strong and ongoing commitment to this goal, backed by robust policies detailing how, where, and when this phase down will happen. Policymakers in Delhi and coal-dependent states must also plan for a just transition for workers and communities.
Evidence from past industrial decline — be it coal in the United Kingdom (UK) or steel in the United States (US) — shows that ensuring a just transition for workers and communities is challenging and often requires long-term and multi-decadal commitments. For India, a just transition may be an even larger challenge due to the country’s massive regional coal-dependency and limited financial and technical capability.
Coal is a complex socio-economic ecosystem in India – a fact under-appreciated by environmentalists and western commentators alike. The sector generates taxes and revenues, jobs, pensions, and corporate social responsibility (CSR) spending.
To start with, coal mining and power companies pay taxes and royalties to the central, state, and district governments. Coal India Limited and National Thermal Power Corporation (NTPC), the main government-owned coal and power companies, collectively contribute 3% of the Centre’s total annual revenue. The Indian Railways is acutely reliant on revenues from coal transport. Coal is also a key source of revenue for at least six states and 50 districts.
Coal mining and power sectors also provide nearly four million direct and indirect jobs. And this doesn’t account for the millions who work in coalbased industries such as steel, cement and brick; hundreds of thousands who provide services to meet the consumption needs of directly and indirectly employed coal workers, such as running shops and restaurants; and several million informal coal workers who scavenge coal for self-use or to sell on the open market. In addition, there are nearly 600,000 coal pensioners whose pensions rely on the survival of the coal industry.
Coal also generates CSR spending. In 2020, coal and power companies spent over ₹1,000 crore building schools, hospitals, and roads.
Overall, nearly 40% of Indian districts have varying levels of coal dependency, with the most pronounced being in the eastern and central Indian states of Jharkhand, Chhattisgarh and Odisha.
Given the multifaceted role of coal in everyday life and economies across India, any unplanned coal phase down might adversely impact the entire coal ecosystem — affecting local jobs, cutting state government revenues, or lowering railway revenues. Numerous global studies show that unplanned closures can turn coal-dependent regions into ghost towns, with massive consequences for people and communities.
Four key steps must be a part of India’s just transition planning.
One, to start the just transition planning process, the central government should initiate the creation of a multi-stakeholder body to guide the process. This has been done successfully in other countries such as South Africa that are also navigating coal transitions. To ensure that the planning process is inclusive, the body should have representatives from various central ministries, state and district governments, coal companies, local communities, civil society, and trade unions.
Two, the Centre, which has capacity and access to funding, will need to take the lead in coordinating just transition policies for coal-dependent states and districts and providing finance for policy implementation. A recent just transition study focusing on Jharkhand (where 11 out of 22 districts are coal-dependent) found that the state has the potential to diversify into sectors such as tourism, non-coal industries and renewable energy. However, this diversification process will require evidence-based policies, and massive investments.
Three, there is an urgent need to sensitise and build capacity among state-level stakeholders, as they will lead the implementation process for just transition policies. This is a key step and will require support from national and international actors.
Four, annual large-scale investments and finance will be required in coal-dependent states to implement transition measures. India can mobilise some finance domestically, but rich countries must also provide grants and concessional finance. Recently, a coalition of European countries and the US committed to an $8.5 billion fund that will support South Africa’s just energy transition programmes. Indonesia has made its coal phase-out conditional on climate finance from rich countries. If India lays the groundwork for just transition planning and implementation, at COP27 in Egypt next year, the country will have a strong basis to seek funding from rich countries for its just transition plans.
The debate on coal phase down vs phase out may continue for some time. Either way, the time is ripe for India to initiate just transition plans.