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Policy Brief: SAFE EXIT

Macroeconomic assessment of coal exit scenarios in Czechia

In this policy brief we presented the analysis of three alternative scenarios of coal exit for Czechia. We show that they are both economically and technologically feasible regardless from the date of the projected phase out: 2038, 2033 or 2030. In all scenarios the natural gas takes the role of a transitory technology that serves as a replacement for coal in Czech energy mix for 2020s and 2030s. This allows the significant development of new renewable capacities that – together with nuclear – contribute to the significant reduction of CO2 emissions in the country’s power sector before 2040.

  • We also show that although all presented scenarios are more capital intensive that the baseline, the difference is not large as the early phase out of coal from the Czech energy system leads also to the time reallocation of necessary investments in the sector. In particular, the most ambitious “coal exit 2030” scenario will significantly reduce the necessary investment volumes in the second half of the next decade thanks to the development of the necessary low emission infrastructure already in the 2020s and early 2030s.
  • The quantitative analysis of the considered coal exit scenarios has shown that they are unequivocally positive for the Czech economy thanks to the favourable sectoral structure of the country’s economy and the shielding from the risk of high CO2 prices in the forthcoming decades. The major winner from the early coal phaseout is the service that benefits from lower energy prices and better material efficiency of the transformed economy. This is due to the protection provided by the transformation to renewables against energy price increases, which allows to release additional consumer demand for non-energy purposes. During the investment phase, we also expect a temporary increase in employment and GDP in construction and manufacturing that benefit from the larger capital expenditures needed in the more ambitious scenarios.
  • The macroeconomic assessment of coal exit scenarios indicates that accelerated transition is a significant opportunity not only for the Czech energy sector but for the economy as a whole. The results show that early coal exits generate a double dividend over time. In the 2020s, there is a positive demand shock driven by the additional investments necessary to replace existing lignite plants. In the 2030s, as the impacts of the investment boom fade, the economy sees increasing long-term benefits of lower costs of energy production, which lead to higher consumer spending on non-energy goods and services.
  • The analysis suggests that coal exit 2030 provides a strong positive impact in the 2020s through increased investments and significantly outperforms later coal exit dates in the case of higher EU ETS prices. As such, rapid coal phase-out may be considered to be in line with the European economic policy priorities: ensuring post-COVID recovery in the short term (by stimulating new energy investments) and increasing the resilience of the economy in the long term (by reducing its emission intensity and dependence on fossil fuels).
  • Given the potential economic gains of coal exit scenarios which increase the close the phase-out date is, it is now crucial to ensure that the energy transition may be delivered in practice. This requires adjustments to policies and infrastructure planning which will allow the timely scale-up of investment in wind and solar power and their integration into the system. The analysis also suggests that it is important to manage the transition on the regional level, especially in the communities dependent on the coal sector jobs. The resources for this task may come not only from the EU funds supporting just transition but also from the economy-wide benefits of the faster coal phase-out.

Please download the policy brief from the links below

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