Coal royalties should be used to fund a Hunter Region transition program of up to $105 million a year for 25 years, Professor Phillip O'Neill says.
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NSW government figures show the government has reaped $16 billion in coal royalties over the past 16 years alone.
The Hunter produces more than 60 per cent of coal in NSW, Coal Services data shows.
Professor O'Neill said the coal transition fund could be paid for, theoretically, in two ways.
Both methods would mean the NSW government still gets to keep the coal royalties.
He said the transition program was "easily fundable" and there was an "ethical and moral argument" that coal should fund the transition.
"If the state government didn't get that $1.5 billion in coal royalties each year, it would have to borrow at the government bond rate," he said.
"Currently, that bond rate is 1.5 per cent. In other words, the cost of borrowing instead of receiving the royalty each year is $22.5 million.
"Over 20 years of royalties at the bond rate, that would give you an expenditure pool of $450 million.
"If all you are doing is taking that coal royalty and giving the bond rate back to the Upper Hunter over a 20-year period - and this is not CPI adjusted - this is just a straight aggregated number - $450 million."
The second way would be to give the annual $1.5 billion coal royalty to a funds manager to invest.
"The government would get the $1.5 billion and the Upper Hunter would get the return on the investment," he said.
"The average return from a superannuation fund for the last 10 years - 7 per cent per annum - is a pretty good guide to what you can do to invest safely."
Under this method, the Upper Hunter would get an investment return of $2.1 billion over 20 years.
"That's $105 million per annum," he said.
"So there's an ethical argument that the government should hand over somewhere between $22.5 million and $105 million a year."
The Newcastle Herald sought comment from NSW Treasurer and Energy Minister Matt Kean and Deputy Premier and Regional NSW Minister Paul Toole.
The ministers made no direct comment themselves, but Mr Toole's Department of Regional NSW responded instead.
"Royalties from mining are directly and indirectly invested back into NSW communities," a department spokesperson said in a statement.
"The Royalties for Rejuvenation Fund was announced last year and will see $25 million of coal mining royalties set aside each year to ensure coal mining communities have the support they need to develop other industries and keep high paying jobs in town.
"Mining royalties are invested back into mining communities though the Resources for Regions program and since 2012, $420 million has been allocated to 242 projects, across eight rounds."
The spokesperson added that mining royalties were "also invested in the NSW Generations Fund - a sovereign wealth fund that will allow the government to respond quickly in times of crisis and help lower debt for future generations".
"The NSW Government as part of the Electricity Infrastructure Roadmap is also rolling out a jobs package designed to support workers access emerging renewable industries."
Nevertheless, Professor O'Neill wrote in his column today that government transition plans are "thin in substance" and "lack genuine financial support and commitment".
Professor O'Neill said coal royalties should be used to rehabilitate the landscape that mines have destroyed.
"That way it comes from the sweat and labour of the coal miner," he said.
This approach could also fund a "comprehensive targeted package over a reasonable period of time" for the area and its people.
"We've done this successfully before. We saw this work with the BHP exit from Newcastle," he said.
He said BHP funded the steelworks exit and coal companies should fund the exit of coal.
Professor O'Neill said coal accounts for about 14,000 jobs in the Hunter.
"About 10,000 of the 14,000 jobs are workers from the Upper Hunter and 4000 in the Lower Hunter and elsewhere.
"You're talking about a problem that's four times the size of the steelworks in terms of direct employment.
"The steel exit took 2.5 years. They should be allowing 25 years to exit the coal industry."
Nevertheless, Professor O'Neill believes the Upper Hunter economy won't be rebuilt in future to the standard that coal provided.
He said it was unrealistic to think that "14,000 very highly paid jobs predominantly for non-degreed workers" could be replaced.
He said it was also folly to think that the fossil-fuel jobs could be replaced with "an equivalent number of renewable energy jobs".
"And it's not realistic to pretend you can rebuild the Upper Hunter economy, with equivalent jobs for untrained young people," he said.
It was more realistic to see the coal transition "as an intergenerational rehabilitation project".
"In 50 years, you will have a beautiful, sustainable, essentially rural landscape that offers sustainable incomes but not a lot of them," he said.
"There will be agriculture, forestry, conservation and tourism, but there won't be 14,000 new jobs."
He said the Upper Hunter had some assets for renewable energy investments, but "it's not outstanding".
"It's not got the most sunshine, heat, wind and tides in Australia. It's not brilliant for hydro. You can do all of those things, but it's not the standout place in Australia where you would attempt massive investment."
The Upper Hunter's big advantage was its electricity distribution infrastructure. Renewable energy generation schemes could tap into this infrastructure.
He said it should be acknowledged that there needs to be an economic development and education program for the Upper Hunter.
Professor O'Neill, who lives in the Hunter Valley, researched the BHP transition while with University of Newcastle. He now lectures in economic geography at Western Sydney University.
"Nobody ever pretended that when you lose a large industry like the steel industry, you're going to replace it."
At the time, he led a study that documented 3640 direct jobs lost at BHP, including contractors. "There were just over 2000 workers retrenched on site at BHP in September 1999, but there were over 1500 contractors."
He said the National Institute of Economic and Industrial Research calculated a further 4920 indirect jobs were lost when BHP closed.
He said the coal transition in the Upper Hunter had a number of differences to BHP's exit in Newcastle.
"You can't transfer any policy directly from one set of circumstances to another. The problem with the Newcastle steelworks was largely a labour force problem and a site clean-up problem.
"The Upper Hunter has a vast landscape, which has been violated by coal mining.
"And it's not just the physical environment, it's the historic fabric of rural settlements and non-metropolitan urban hierarchies that have been largely destroyed."
He said the landscape and its townships "need to be rehabilitated".
"That's why it's more than just the urban redevelopment project that Newcastle confronted after the steelworks. It's a project that will take generations."
Coal has been mined in the Upper Hunter's open cut mines since the mid-1980s.
"So you can't expect the massive scarring of the landscape, now in its fourth decade, to be fixed in a couple of years," he said.
When BHP closed in September 1999, the Lower Hunter economy was relatively diverse.
"You had nearly 200,000 jobs in the Lower Hunter at the time," he said.
The loss of 3600 jobs was a big hit, but the well qualified young workers gained new jobs quickly.
"That will happen to a lot of the 14,000 coal workers. They're highly productive, in many cases young workers, many with trades and degreed skills.
"The problem is, while Newcastle had 200,000 jobs that had to soak up 3600 workers, you can't soak up 14,000 workers in the Upper Hunter."
As reported on Saturday, Professor O'Neill said a seven-point program should be used in the Hunter to manage the transition from coal. It could be based on the BHP "pathways program", which helped more than 900 former BHP workers complete about 7000 training initiatives for new career paths.
The seven parts of the program were: plenty of time for the transition; a retraining program for coal workers; family welfare support; local development initiatives; regional development initiatives; site rehabilitation; and a multi-level government initiative - local, state, federal.
