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Source: IEA, 2010.

Note: CCS = carbon capture and storage.

Similarly, analysis by the Energy Information Administration of the American Power Act of 2010 highlights cumulative retirement of between 13% and 83% of current coal-fired power plants in the United States between now and 2035, depending on alternative assumptions on technology availability, international offsets, banking of emission credits and shale gas prices (EIA, 2010).

The Garnaut -25 scenario for Australia's Low Pollution Future also envisages significant early retirement of coal-power plants (Australian Treasurer and Minister for Climate Change and Water, 2008). Analysis of policy options for the UK electricity market reforms to achieve ambitious CO2 emissions reduction (Redpoint Energy, 2010) also shows cumulative coal plant retirements of between 18 GW and 26 GW by 2030, out of 29.5 GW installed today. By contrast, some modelling scenarios exclude a priori early retirement of existing assets. For instance, the European Climate Foundation's Roadmap 2050 assumes that all plants are retired at the end of their lifetime (40 years for coal plants) (ECF, 2010).

These diverse scenario results are driven by the different assumptions and mechanisms at play in the modelling tools used. First, the emissions pathway considered, particularly its stringency in the first years, determines how many new coal plants are commissioned in the first years and may therefore be retired in later years when more stringent emissions reduction are required. Second, the representation of investment and retirement decisions varies: some models assume foresight of future prices for both fuel and carbon, while others do not. Models assuming that investment decisions are based on average levelised costs also give different investment behaviour than those that factor uncertainties into the equation.

Important end-use efficiency improvements may reduce electricity demand and accelerate the retirement of less efficient plants. An opposite scenario of lower efficiency improvement and higher electricity demand could complicate the retirement issue, as more low-CO2-emitting plants would need to be financed to meet demand.

The range of modelling assumptions and approaches used means that there is no definitive answer regarding the role that early plant retirement is likely to play in the low-carbon transition. There are, however, certainly indications that it could be a significant issue, and could raise important questions for policy making:

► If early retirements of some plants are necessary, what policy will drive this? Is carbon pricing effective enough, or should alternative policies or some combination of policies be implemented?

► What impact will other environmental regulations have (such as limitations on conventional air pollutants, ash disposal, or water use)?

► As plants' run time is reduced, how will demands of the electricity system for peaking capacity, adequate reserve margins, and locational generation affect plant retirements?

► How should the financing issue be dealt with? Who should bear the cost of early retirements? Should compensation schemes be designed?

► Can alternative policies avoid the need for early retirements?

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