Revoking coal mining permits: an economic and legal analysis

ABSTRACT

Achieving mitigation targets under the Paris Agreement will depend on the early retirement of coal mines and plants over the next decade. In the absence of sufficiently stringent demand-side policies, supply-side injunctions provide a potential avenue to expedite the decline of coal. In many coal-producing jurisdictions, the law provides grounds to revoke coal mining permits. Recent plans to phase out coal use in Germany provide an interesting testing ground for this concept. We study the case of permits granted to RWE Power AG to continue operating Europe’s largest opencast lignite mine, situated at the 12,000-year-old Hambach Forest in the state of North Rhine-Westphalia (NRW). We conduct two complementary assessments: (i) a legal analysis finding that German law provides several grounds for the revocation of coal mining permits, particularly when linked to quantifiable damages to local ecosystems and communities; and (ii) an economic analysis using natural capital accounting to quantify the environmental and societal costs associated with alternative scenarios of continued and halted mining activity. We find the net present value of gains from immediately halting operations at the Hambach lignite mine to be €98–208 billion over 34-years, equivalent to 13–30% of NRW’s annual GDP. Health-related savings from avoided air pollution are 6.5 times greater than costs of replacing lost capacity with new renewable energy and battery storage infrastructure and two orders of magnitude greater than costs of compensating laid-off mining workers.

Key policy insights

• The revocation of coal mining permits could be a legally plausible and replicable means of expediting the decline of coal.

• Natural capital accounts highlight the third-party costs of coal mining, quantifying the often-ignored health-related damages from polluting activities.

• Legal criteria adopted by agencies when assessing coal mining permits should be modified to accurately reflect considerations of climate change, local ecology, human health, and national policy.

• Independent and externally reviewed natural capital assessments should be required as standard protocol for the issuance of fossil fuel exploitation permits.

• Debates about appropriate levels of compensation to coal companies for premature mine closures should factor in the implicit and explicit subsidies such companies have received in the past.

KEYWORDS:

• Supply-side climate policy
• coal phase out
• Hambach Forest
• fossil fuel permits
• natural capital accounting
• German climate policy

Acknowledgements

Support from the Oxford Martin Programme on the Post-Carbon Transition (University of Oxford) and Climate Econometrics (Nuffield College, Oxford) is gratefully acknowledged. For insightful comments at various stages of this paper’s development, we are grateful to Cameron Hepburn, Ashley Gorst, Pernille Holtedahl, Joanna Depledge, Matthew Ives, Luke Jackson, Joana Setzer, Sophie Marjanac, the organizing committee of the 2nd International Conference on Fossil Fuel Supply and Climate Policy, and three anonymous reviewers.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 For example, in IPCC (2018) model scenarios with ‘high overshoot’ prior to stabilizing global mean temperature rise at 1.5°C, coal’s share of global primary energy supply declines to around 4% by mid-century, with most of the remaining coal-fired plants retrofitted with carbon capture and storage (CCS) technologies.

2 Justice Louis Brandeis, dissenting opinion in Pennsylvania Coal Company v. Mahon, 260 US 393 (1922).

3 Note that the Garzweiler II decision will only have implications for the mining company from 2030 onward.

4 Since 2018, annual lignite production at Hambach has partly diminished as a consequence of BUND’s legal action.

5 The market value of lignite in Table 1 is also an upper bound because excavation costs have not been factored in.

6 NRW’s GDP in 2017 was €690 billion.

7 See Section 1-26-504(a) of the 2017 Wyoming Statutes; Sections 32 and 33 of the Wyoming Constitution; Section 8(1)(b) and (c) of the Alberta Mines and Minerals Act; and Section 8.1(1) of the Alberta Coal Conservation Act.