Moving beyond coal for green power: How to create an alternative economy using DMF funds in coal mining areas

The existing overcapacity, coupled with increasing non-competitiveness of coal power plants, means that the country doesn’t need to construct new coal power plants till 2027.

Moving beyond coal for green power: How to create an alternative economy using DMF funds in coal mining areas
How DMF funds can be used to move beyond coal

The latest Intergovernmental Panel on Climate Change (IPCC) report on the impacts of global warming of 1.5oC above pre-industrial levels has come as a clarion call, warning us of the catastrophic impacts of global warming if the planet warms beyond 1.5oC. India, with a significant proportion of its population poor and dependent on agriculture, is extremely vulnerable and will be one of the most affected countries.

The urgency to act now is overwhelming. To remain within 1.5oC warming, the world will have to cut down its carbon dioxide (CO2) emissions by 45% by 2030 from 2010 levels and must reach net-zero emissions by 2050. As a measure to achieve this, the IPCC report has laid a major emphasis on reducing coal consumption. It has indicated that coal-based power plants must be phased out and replaced with renewable energy sources by 2050. That means global coal consumption for energy will have to reduce by at least 90% by 2050 from present levels. For India, though this sounds an impossible task, there is now sound economic and environmental reasoning to start thinking about phasing out coal power plants and closing coal mines over the next 30-40 years.

In the past decade, India nearly tripled its installed capacity of coal-based thermal power—from 71 gigawatts (GW) in 2007 to 215 GW in 2018. But the peak demand in 2017 was barely 170 GW. Much of this excess capacity is currently being “backed down”, but the DISCOMs are bearing the full fixed costs of the idle capacity. This is increasing the electricity cost and stressing the balance sheets of DISCOMs.

The fact is new coal power plants cannot compete with new solar PV and wind plants. The tariff for solar PV and wind has fallen drastically, and a tariff below `3/kWh is now a norm. In comparison, the tariff for coal generation capacity added in the last few years is in the range of `4-5/kWh. It, therefore, makes little economic sense to invest in new coal power plants.

From an environmental point of view, coal was always problematic. Coal power plants are the single-largest source of air pollution in the country. Deaths and diseases due to air pollution costs India a GDP loss of more than 5%. Recently,the Badarpur Thermal Power Station was permanently shut down to reduce air pollution in Delhi. If the same principle is applied to all coal power plants located near highly-populated areas, then a significant proportion of the country’s coal capacity will have to be shut down.

The existing overcapacity, coupled with increasing non-competitiveness of coal power plants, has led the Central Electricity Authority to project that the country doesn’t need to construct new coal power plants till 2027. Post 2027, the economic rationality to install coal plants would be even lesser, as renewable energy coupled with battery storage will be able provide 24×7 electricity at prices lower than coal power. If we use the thumb rule of 25 years as the economic life of a coal power plant, then by 2050, it would be possible to close down all coal plants and replace them with renewables and other non-fossil-based sources of energy.

But this would be a major transition which will have a huge impact on the economy, particularly for states for whom coal mining is a key source of revenue and jobs.

Coal is a major source of revenue and employment for states like Jharkhand, Chhattisgarh, Odisha and Madhya Pradesh.  The royalty earned by Jharkhand from coal in 2017-18 was `3,403 crore—about 18% of the state’s own tax and no-tax revenue. The state’s coal capital Dhanbad alone has a share of `1,295 crore and the main company in Dhanbad, Bharat Coking Coal Limited, provides nearly 52,000 jobs. These figures do not account for the substantial number of taxes and jobs that coal mining creates in the industry, transport and other services.

In Chhattisgarh’s Korba district, one of India’s top coal district and power hubs, the revenue from coal mining in the last financial year was `1,435 crore. The South Eastern Coalfields Limited provides direct employment to nearly 59,700 people, and a significant number of these are in Korba. In other words, Korba, with a population of about 15 lakh, literally depends on coal for its economic growth and development. This situation repeats itself for all coal mining districts. So what will happen to these places when coal mining ceases in the next 30-40 years?

The truth is we already know what happens when mining stops in a region. Koderma and Jhumri Telaiya in Jharkhand, once a boom town, suffered immensely when the mica mines were closed down. Copper towns of Jharkhand became ghost towns. All this happened because no long-term plans were put in place to develop an alternative economy. But we can avoid this eventuality by wisely using the money collected by the District Mineral Foundations (DMF), a public trust set up under the provisions of the Mines and Minerals (Development and Regulation) (MMDR) Act through an amendment in 2015.

All mining companies, including those involved in coal mining, are paying an amount equivalent to 30% of the royalty to DMFs for leases granted before the MMDR Amendment Act came into effect in 2015, and an amount equivalent to 10% of the royalty for leases granted through auction after that. The money coming to DMF is substantial. As per latest estimates, DMF across India have collected about `21,000 crore, and it is growing by the day. Coal mining accounts for almost half of this fund.

Some of the top coal districts such as Dhanbad, Korba, Singrauli, etc., are estimated to get about `300 to `400 crore per year in their DMFs. These districts would continue to get this money every year till the mines are operational.

The DMF money is meant to be used to improve the social and economic well-being of people and areas that have been affected by mining-related operations. The opportunity is enormous. As coal mining will taper down in the coming years, the need of the hour is to look into well-planned and long-term sustainable investments through DMF funds that can secure the future of people living in coal mining districts and states.

The bottom line is that DMF planning must begin to factor in the fundamental fact that coal extraction will have to be limited in the coming years. It is in the interest of the nation, therefore, to start planning now, so that the economic shock that the closure of coal mining would entail can be managed better.

The author is Deputy director general of Centre of Science and Environment. Twitter: Bh_Chandra

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