| In the book New York 2140, Kim Stanley Robinson imagines what it would be like if financial markets were designed for trading risks such as sea-level rise or tidal surges. Another mildly dystopian climate-related trade is emerging much sooner: betting on the timing and cost of coal mine closures. If recent events are a guide, the people proposing such trades will try to market them as a kind of sustainable investment, even if their justifications defy logic and — at worst — actually risk exacerbating global warming. The financial industry has broadly accepted that producing thermal coal is no longer a growth opportunity. Debt financing costs were almost two-thirds higher from 2000 to 2020 than in the decade that preceded it, according to research published by Oxford University. Demand is falling, too. Even China, which plans to keep building coal plants domestically, is backing away from funding them overseas. Except in a few places where thermal coal is nearby and easily mined, renewable energy generation is now cheaper and far less polluting. So, what happens to the unwanted coal mines? Climate "bad banks" or funds specifically dedicated to running down coal mines have been proposed by asset managers, investment banks, miners, and commodities traders. The idea is that the "bad" coal assets can be hived off into a special vehicle, or spun off into a dedicated listed company, with provisions and promises to end its life in a timely and responsible way. This approach deals with one problem around coal closure. For a handful of listed companies that are still producing the dirtiest fossil fuel, their other lines of business, such as mining metals to make batteries, don't have to be weighed down by investors' aversion to their coal stablemates. It also removes the liability for clean-up costs from their books. In other words, it's a solution that makes sense whether you're BHP Group (which wants to sell its remaining thermal coal assets but is struggling to find buyers) or Glencore Plc (which is currently planning to hold on to them). The proponents of a vehicle backed by Citigroup and Trafigura are also seeking an extra sweetener. Their bad bank-style fund is being pitched as a climate-friendly investment on the grounds that it will support the energy transition. But it's not just about shutting down coal mines so they stop producing planet-warming fossil fuels. The operations also damage the surrounding land and waterways. Fixing this is expensive, and workers and local communities can be economically bereft when a mine closes. There are already signs that companies struggle with these remediation costs, which can be large and difficult to estimate. Anglo American Plc's coal spin-off, Thungela Resources, has faced short-seller criticism that it will have to spend much more on clean-up than it budgeted. South32, itself a BHP spinoff, last month agreed to pay as much as $175 million as part of the sale of its South African coal mining business. But that only partly covered the expected remediation costs, with its chief executive suggesting the rest could be funded by ongoing operations. Some very big assurances will need to be made before old coal mines change hands, especially if the transactions are framed as "green" or "transition" finance. Investors, regulators and the public should demand ironclad commitments that the entity won't simply try to maximize cash flow by pushing out as much coal as it can before the planned closure date (or even try to extend that timeline). The Citi/Trafigura proposal is to keep producing coal until 2045 — well beyond the deadline for limiting disastrous warming. A second hurdle is ensuring that the costs of remediating the local environment and supporting communities are accounted for. Meeting these costs is already a mess in many parts of the world. The U.S., unlike many countries, requires mining companies to put funds aside for closure and clean-up. In 2018 the Government Accountability Office found that almost a quarter of 450 mines that had forfeited their funds hadn't put enough money aside (another 26% had not yet been determined). There is a very strong argument that some structure is better than nothing. If they aren't put into carefully constructed vehicles, ailing fossil fuel assets could end up being sold to opaque, unlisted entities that have no intention of running, or closing, them responsibly. There are no easy answers. But for anyone who wants to claim they're being sustainable, there are some important demands to be made of any fossil fuel "closure" pitch. While those coal mines are still generating cash, some of it should go into a well-provisioned sinking fund for remediation and reclamation. Better still, remediation should be started while the mines are still operating. All this will require strict oversight and scrutiny from very attentive investors. Kate Mackenzie writes the Stranded Assets column for Bloomberg Green. She advises organizations working to limit climate change to the Paris Agreement goals. Follow her on Twitter: @kmac. This column does not necessarily reflect the opinion of Bloomberg LP and its owners. Like getting the Green Daily newsletter? Subscribe to Bloomberg.com for unlimited access to breaking news on climate and energy, data-driven reporting and graphics, Bloomberg Green magazine and more. Watch the future unfold on June 30. 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