Chile’s lesson for India’s coal conundrum

Source: The post “Chile’s lesson for India’s coal conundrum” has been created, based on “Chile’s lesson for India’s coal conundrum” published in “The Hindu” on 06th December 2025.

UPSC Syllabus: GS Paper-3- Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context: India faces a critical challenge in phasing out coal while balancing its economic growth, energy needs, and environmental concerns. Despite significant renewable energy progress, India dropped in the Climate Change Performance Index due to slow progress in reducing coal reliance. Chile’s experience in transitioning away from coal provides valuable lessons for India. While both countries face challenges in transitioning to cleaner energy sources, Chile’s approach could offer insights into how India might manage its own coal exit.

Current Coal Scenario in India:

1. High Dependency on Coal: Coal continues to make up over half of India’s energy mix, and it contributes to 75% of electricity generation. This high reliance on coal remains a major barrier to achieving India’s climate goals.
2. Renewables Share: While India has increased its renewable energy capacity significantly, with 50% of total installed power capacity coming from renewables by 2024, only 20% of electricity was generated from renewable sources in the same year. This shows that renewable energy is still not fully integrated into the national grid.
3. Increase in Domestic Coal Production: India is increasing domestic coal production, exacerbating the challenge of reducing coal dependence while expanding clean energy sources.

Chile’s Experience:

1. Dramatic Coal Reduction: Chile reduced coal’s share in electricity generation from 43.6% in 2016 to 17.5% by 2024. This was accompanied by a shift towards renewable energy, with wind and solar power now contributing over 60% of the country’s electricity mix.
2. Government Policy and Actions: The transition in Chile was driven by decisive government actions. This included a carbon tax of $5 per tonne of carbon emissions and stringent emission standards for coal plants. The government also used competitive auctions for wind and solar power, which drove down the cost of renewable energy.
3. Energy Storage and Grid Stabilization: Chile invested in energy storage systems to ensure the stability of the grid as renewable energy sources like solar and wind were scaled up.
4. Phaseout Commitment: Chile has committed to phasing out all coal-fired power plants by 2040, showing a clear long-term strategy for the country’s energy transition.
5. Political Environment and Market Reforms: Chile’s political environment and the privatization of key sectors enabled the rapid implementation of market-driven reforms. The smaller share of coal in Chile’s energy mix also made the transition easier compared to India’s deeper reliance on coal.

Challenges for India:

1. Deep Coal Dependency: Unlike Chile, India has a much deeper dependency on coal, especially in coal-rich regions like Jharkhand, Chhattisgarh, Odisha, and West Bengal. This makes the transition more complex and potentially more disruptive for local economies.
2. Social and Economic Risks: Coal regions in India face social risks from abrupt closures, including job losses and economic disruption. The lack of alternative industries in these areas poses a significant challenge for providing new employment opportunities for displaced workers.
3. Economic Alternatives: India’s limited economic alternatives in coal-dependent regions make it difficult to create viable paths for economic diversification.

Need for Decarbonization:

1. Climate Change Risks: Phasing out coal is essential to mitigate the impact of climate change, which is expected to significantly harm India’s economy. It is estimated that by 2100, climate change could reduce India’s GDP by 3%-10% due to heat stress and declining labour productivity.
2. Health Impacts: Coal pollution is linked to severe health problems, including higher infant mortality rates in districts near coal plants. This makes the coal phaseout a critical part of improving public health, in addition to mitigating climate change.
3. “No Regrets” Policy: Coal phaseout is a “no regrets” policy because it not only helps in avoiding the damage caused by climate change but also reduces health-related damage caused by coal pollution.

Steps for Transition:

1. Tackling Renewable Energy Limitations:
   1. Expanding Renewable Energy: India must focus on expanding renewable energy capacity, particularly solar and wind power, and improve energy storage systems to ensure grid stability.
   2. Electrification of Sectors: A major part of the transition involves electrifying transport, industry, and households. This would reduce the overall demand for coal and facilitate the integration of clean energy into various sectors.
2. Reforming Markets and Regulations:
   1. Carbon Pricing: Implementing carbon pricing will make coal less attractive economically by accounting for its environmental costs.
   2. Remove Coal Subsidies: Coal subsidies must be phased out to avoid further entrenching coal dependence.
   3. Clean Dispatch Rules: Power procurement contracts should favor renewables over coal, incentivizing investment in clean energy projects.
   4. Encourage Renewable Investments: Reforming market structures and creating incentives for renewable energy investments will help accelerate the shift away from coal.
3. Support for Workers:
   1. Reskilling Programs: Following Chile’s example, India must provide robust support for coal workers through reskilling programs to help them transition to new industries and employment opportunities.
   2. Alternative Livelihoods: Developing alternative livelihoods for workers displaced by coal plant closures is essential. This will help mitigate the social impact of the transition.
   3. Transition Fund: A dedicated transition fund, such as the proposed “Green Energy Transition India Fund,” is crucial to support displaced workers and foster the growth of renewable energy industries in coal-dependent regions.
4. Financing the Transition:
   1. Blended Financing Model: A blended financing model, combining public and private capital, should be adopted. The government can direct funding toward community welfare, worker reskilling, and social protection, while private investors can focus on expanding renewable energy infrastructure.
   2. District Mineral Foundation: The District Mineral Foundation corpus can be strategically utilized to support entrepreneurship and economic diversification in coal-dependent regions, helping to reduce their reliance on coal.

Conclusion: The phaseout of coal needs to become a top political priority in India. While renewable energy gains show promise, a clear roadmap to replace coal with renewable sources is essential for achieving India’s climate goals. India needs to develop a comprehensive, actionable roadmap for phasing out coal, addressing financing, worker support, and market reforms. Chile’s experience provides valuable lessons in transitioning from coal to renewable energy, particularly in terms of policy, market reforms, and worker support. India must learn from these strategies while adapting them to its unique context to ensure a just and sustainable energy transition.

Question: Drawing lessons from Chile’s experience, discuss the challenges and strategies for India to phase out coal and transition to renewable energy while ensuring socio-economic stability and environmental sustainability.