World Resource Institute

Colorado, United States: State-Level Planning for a Just Transition from Coal

<p>Photo credit: heshphoto/getty</p>

Photo credit: heshphoto/getty

Highlights

Colorado is planning ahead for the gradual closure of coal-fired power plants and putting in place strategies to ease worker and local community transition in a zero-carbon economy. The state has created a Just Transition Office and a Just Transition Advisory Committee, both of which have been entrusted with crafting a just transition plan for Colorado’s workers and local communities dependent on the coal industry. The work to date has brought together diverse stakeholders and produced 11 concrete recommendations to help workers and communities and to ensure adequate resources for a just transition. Notably, communities that have been disproportionately affected by coal-related pollution will also receive support. In addition, Colorado passed legislation enabling securitization, a refinancing mechanism to hasten the closure of uneconomic coal plants by allowing utilities to swap their remaining coal plant debt for a ratepayer-backed bond.

Context

Colorado has extensive coal resources and a long and rich history of mining, but the coal sector has been declining for many years. Today, Colorado’s six active coal mines employ about 1,100 people; add coal-fired power plants, which consume about half of Colorado’s coal production, and transportation and other workers along the supply chain, and the number of jobs rises to more than 2,250. With coal in decline in the United States and Colorado setting a target of 100% renewables by 2040, however, these jobs are expected to vanish in the coming decades and to create significant economic distress for a number of (predominantly rural) counties.

Just Transition Plans and Results  

In 2019, Colorado enacted legislation – HB 19-1314, “A Bill for An Act Concerning a Just Transition From Coal-based Electrical Energy Economy” – which aims to develop policies to support workers and communities affected by the loss of coal-related jobs, as well as to provide opportunities to communities that have been disproportionately affected by pollution from the coal industry. The legislation created a Just Transition Office, housed within the Department of Labor and Employment, and a Just Transition Advisory Committee entrusted with the responsibility of developing a state-wide just transition plan. Beginning in 2025, the Just Transition Office is expected to provide support to coal transition workers and grants to coal transition communities to enable them to diversify their economies. This Colorado legislation is the first of its kind in the nation and could serve as a model for other states where coal is in decline.

The Just Transition Advisory Committee released a draft plan in August 2020, which includes 11 recommendations targeting coal workers, coal communities and fiscal issues:

For coal workers, recommendations include:

  1. Assisting all interested coal workers in developing individual transition plans to help them achieve their financial, career and/or retirement goals — beginning as early as possible, ideally while still employed in their coal-related jobs.
  2. Developing a package of training, job search and relocation support services to help workers achieve their transition goals. These should be developed in collaboration with employers, labor unions, community colleges, universities and other community anchor institutions.
  3. Offering temporary income and benefit assistance, including a wage and health differential benefit for workers remaining in the workforce, and a wage and health replacement option for workers nearing retirement (subject to length-of-service requirements).

For impacted coal communities, recommendations include:

  1. Supporting affected communities by developing local transition plans and providing funding and technical assistance to help them diversify from resource extraction to new industry sectors that provide living wages and an adequate tax base.
  2. Aligning and coordinating existing state programs to support local transition plans and facilitate the growth of existing businesses while attracting new industries and businesses.
  3. Investing in local physical and community infrastructure, with investments subject to labor standards, domestic content requirements, local hiring and community benefit agreements to maximize the benefit to the local community.
  4. Establishing a state-wide investment fund focused on making investments in coal transition communities, and a state-wide independent investment intermediary focused on leading and structuring investments in coal transition communities to lower risk for other investors and provide a mechanism for long-term investments in these communities.
  5. Reviewing state tax, fiscal and regulatory policies to continue support for essential services and infrastructure, identify appropriate state and local taxation policies for utility-scale renewable energy projects and support efforts by utilities to reinvest in coal transition communities.

The advisory committee was tasked with identifying funding sources for these efforts. This may prove challenging, since COVID-19-related budget shortfalls have already led to Colorado’s General Fund budget being cut by 13% from previously approved levels (as of mid-2020), with deeper cuts anticipated.

The final plan was scheduled to be submitted to Governor Jared Polis and the General Assembly by December 31, 2020. In the meantime, the Office of Just Transition will review the draft plan, coordinate with state agencies to assess the capacity of coal transition communities to develop and operationalize their local implementation plans and solicit public feedback on the draft plan. Final strategies will be developed over the next several legislative sessions.

In 2019, Colorado also passed an act, SB-236, which provides for securitization of uneconomic coal-fired power plants as a way to hasten their retirement and bring in additional funding for just transition activities. Similar to home mortgage refinancing, securitization allows utilities to swap their remaining coal plant debt for a low interest ratepayer-backed bond. Utilities issue a bond for which ratepayers pay the interest (typically under 3%, compared to 7% to 8% for conventional debt) via a bill surcharge.

The funds raised by the bond are then used to fund the costs associated with dismantling the power plant, remediating and repurposing the site and covering the utility’s stranded asset losses. For ratepayers, it is cheaper to pay off the bond than keep the uneconomic coal plant in operation. For every $100 million in unrecovered costs securitized for a coal plant that is retired 20 years early, ratepayers can save $35 million to $45 million. A portion of these savings is expected to be reinvested in impacted coal communities and workers.

Securitization has not yet been used in the context of a coal plant closure, and utilities have not shown much enthusiasm, since they would only recoup money that has already been spent on the plants but would not earn the profits they expected from their investments. Labor and environmental groups backed the legislation, while acknowledging that it alone would not be enough to fund the state’s just transition strategies.

Strengths   

  • Precedent-setting legislation: HB 19-1314 (about a just transition away from coal) and SB-236 (enabling securitization of uneconomic coal-fired power plants) are the first instances in the United States of state legislation to acknowledge that the U.S. coal industry is in decline and that coal workers and communities will face hardship in absence of just transition strategies. The legislation can serve as models for other states and the federal government.
  • Diverse coalition: HB 19-1314 was the result of work by a diverse coalition, including labor interests, environmental groups, county governments and state-level politicians. Union representatives, particularly the Colorado AFL-CIO, pushed for provisions to reduce barriers to reemployment, such as a wage differential benefit for workers who may end up in jobs that pay less than their coal job. Democratic control of the state legislature and the governorship also created an enabling environment for climate-related legislation.
  • Inclusion of environmental justice: HB 19-1314 states that the interests of disproportionately impacted communities should be taken into consideration in just transition planning. While just transition policies apply to coal workers and communities who are “disproportionately impacted” due to the transition away from coal, Colorado’s legislation goes further by acknowledging that there are communities who are disproportionately exposed to pollution and other environmental hazards because of their proximity to industrial facilities. The advisory committee has created a Subcommittee on Disproportionately Impacted Communities, which will evaluate how environmental justice considerations can be included in just transition discussions going forward.

Challenges and Gaps   

  • Lack of clear funding mechanism: So far Colorado has not identified funding sources to support these activities, a challenge that the advisory committee has recognized and which will be exacerbated by COVID-19. An important next step would be to identify state and federal resources that can support the programs proposed by the advisory committee.
  • Inadequate staffing and resources: Colorado’s Just Transition Office currently consists of just one person, jeopardizing Colorado’s ability to effectively implement its state-wide strategy. With pandemic-imposed budget cuts, it is unclear whether Colorado will be able to prioritize just transition planning in the foreseeable future.
  • Narrow focus: Colorado’s just transition strategy focuses only on coal, but the state also has significant natural gas and petroleum resources and related industries that will have to be phased out as well. When that happens, additional workers and communities will be impacted. While current efforts can serve as a model for other sectors, a broader perspective will eventually be required.

Further Reading