DP17654 The Great Carbon Arbitrage
We measure the gains from phasing out coal as the average social cost of carbon times the quantity of avoided emissions. By comparing the present value of benefits from avoided emissions against the present value of costs of ending coal and replacing it with renewables, our conservative baseline estimate is that the world can realize a net gain of $85 trillion. This global net social benefit can be attained through an international agreement to phase out coal. We also explore how this net benefit is distributed across countries and find that most countries would benefit from a global coal phase-out even without any compensatory cross-country transfers. Finally, we estimate the size of public funds that must be committed under a blended finance arrangement to finance the cost of replacing coal with renewables.