US Plan to Phase Out Coal Receives Mixed Reception at COP27

Like most developed countries, the United States is keen on cutting its carbon emissions by phasing out dirty fuels such as coal and gasoline over the next few decades. Climate change is becoming increasingly apparent,  with global warming causing extreme weather events around the world as well as droughts that are expected to cause a major food crisis.

However, transitioning from fuels such as coal won’t be cheap; developed countries have spent decades building systems that rely on fossil fuels, and it will take significant investment to develop infrastructure for renewable energy.

The U.S. has proposed a controversial plan to fund the phase-out of coal power that has proven to be extremely divisive at the recent COP27 launch. The new proposal would see North America draw funds for its green energy transition from the sale of carbon credits to companies that produce environmental pollutants.

This essentially means that companies will be able to continue producing pollution in exchange for a fee that will be used to fund America’s transition from coal. Carbon credits have hardly been popular since they were first introduced, and their popularity hasn’t grown in recent years, especially as the need for cleaner, nonpolluting sources of energy emerges.

The proposal to use carbon credits to fund the final phase-out of coal was introduced at the UN Summit by U.S. climate envoy John Kerry. He noted that fossil fuel companies would be completely locked out of the proposal but did not explain whether or not they would be prevented from buying carbon credits from the secondhand market.

Dubbed the Energy Transition Accelerator, the system is expected to be up and running by next year’s COP28, according to Kerry.

Voluntary Carbon Markets Integrity Initiative cochair Rachel Kyte said that the proposal proved to be a “massive distraction,” stating that great steps have been taken to craft rules for the carbon credit market and that the Energy Transition Accelerator was not “baked yet.”

On top of being highly divisive, the carbon credits market is barely regulated. Critics and green energy proponents argue that companies should be trying to find ways to reduce their carbon emissions instead of offsetting the carbon they emit into the environment with cheap credits.

On the other hand, UN secretary-general António Guterres was in favor of the proposal as long as it had strict safeguards. World Resources Institute president Ani Dasgupta noted that we still had insufficient mechanisms and funding levels and that a new approach was needed to step up climate change financing.

The U.S. position reflects how hard it is going to be to completely phase out coal given how limited green energy options are in terms of their availability and penetration. It is therefore likely that existing coal companies such as Arch Resources Inc. (NYSE: ARCH) will remain in business while the world works out how to make clean energy a reliable and abundant alternative to the “dirty” fuels.

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