In 2022, the IEA published its special report Coal in Net Zero Transitions. Since then, the policy and technology landscape continues to evolve. At the end of 2023, the 28th Conference of the Parties (COP28) to the United Nations Framework Convention on Climate Change (UNFCCC) called for “transitioning away from fossil fuels in energy systems,” including the specific call for parties to begin “accelerating efforts towards the phase-down of unabated coal power”. This report, developed at the request of the Japanese Group of Seven (G7) Presidency, presents an update to our 2022 report, building on the analysis developed in the original report and complementing it with the latest data and scenarios from the IEA.

Achieving the goal adopted at COP28 of net zero emissions of greenhouse gases from the energy sector by 2050 hinges critically on the rapid transition away from the unabated use of coal for generating electricity. The scale of the task cannot be overstated: coal accounts for over one-third of global power supply, in many cases from recently built plants. As the most carbon-intensive fuel, coal’s role in emissions is even bigger: globally, coal is responsible for over 40% of all energy sector CO₂ emissions. If existing coal power plants and industries were to continue to operate as they do today, they would “lock in” emissions pushing the world well beyond the 1.5 °C limit.

Global coal demand grew in 2023, despite rapid growth in renewables-based power generation. The largest uptick was observed in the People’s Republic of China (hereafter, “China”), followed by India and other emerging and developing economies. Growing use of coal, mainly for power, has accounted for nearly all the increase in global CO₂ emissions since 2019. According to the latest IEA estimates, clean energy deployment since 2019 has helped to avoid coal demand of around 580 million tonnes of coal equivalent per year on average – equivalent to the coal demand for power generation of Indonesia and India combined.

A growing number of countries have adopted net zero emissions pledges, which is tantamount to phasing out completely the unabated use of coal and other fossil fuels. At the end of 2023, those pledges covered more than 85% of global energy sector emissions. More and more countries have also made specific commitments to phase down or out the use of unabated coal in power, covering 30% of current coal‐fired generation – up from less than 20% in 2022. 

Reducing reliance on unabated coal-fired power generation is possible only if alternative sources of power are developed quickly enough to meet rising electricity demand. In the Announced Pledges Scenario (APS), where all climate commitments made by governments worldwide are met in full and on time, nearly 75% of the drop in global coal-fired generation over 2022-2050 is compensated for by solar PV and wind power, followed by hydropower and other renewables and nuclear. At COP28, governments committed to tripling renewable capacity by 2030 in line with the IEA’s Net Zero Emissions by 2050 Scenario, which if achieved, would be a crucial accelerant in the transition away from coal powered generation. The latest assessment of the announced pipeline of renewable power projects indicates that if these come to fruition, the world would already be nearly three-quarters of the way to the tripling target. However, critical investment gaps persist in many emerging market and developing economies.

Shifting coal plants from baseload generation to more flexible operation will reduce coal use while supporting the integration of alternative sources of electricity generation. This would lower emissions while preserving electricity security and can reduce the near-term impacts on jobs and the local economy. In the APS, the capacity factor of coal plants in emerging market and developing economies falls from around 55% in 2022 to around 45% in 2030, and around 40% in 2040. Alongside repurposing these plants towards providing grid support, countries should align their grid operation protocols and compensation schemes to encourage coal plants to operate more flexibly, which can also help offset the revenue losses associated with lower capacity factors. Some plants are also retired before their technical lifetimes, while others are retrofitted with carbon capture, utilisation and storage (CCUS) technology or co‐fired with low‐emissions fuels such as ammonia or biomass. The potential for adopting these approaches varies by country, and could consider a blend of direct regulation, financial incentives and market-based measures.

Favourable economics for renewables will not, on their own, be sufficient to achieve the rapid transition away from coal power. In many regions, new renewables offer lower levelised costs of energy than the cost of operating existing coal plants. However, this is not the case everywhere, and in some regions coal plants have contract or dispatch agreements which shield them from market competition. Addressing these barriers and incentivising investment in low-emissions power is imperative to unlock the transition away from unabated coal power and the full potential of renewables. Over 2023-2030 in the APS, USD 890 billion needs to be invested annually in low-emissions power capacity and support, such as grids and battery storage, with around a third of new low-emissions power capacity additions dedicated to replacing coal generation, instead of meeting incremental demand. Mobilising this investment depends critically on bringing in more private sector investment, and finding the right financing mechanisms that address the problems posed by today’s high interest rate environment, particularly in emerging and developing economies. 

Policies to facilitate the financing of clean energy must go hand-in-hand with measures to end financing for new coal power and to finance the early retirement of some coal assets.  Over 2023-2030, around 20 gigawatts of coal power plants operating today are retired before they reach 30 years in the APS. For many of these plants, especially in the emerging market and developing economies, large amounts of capital invested in them have yet to be recovered. There is no single blueprint for phasing out coal‐fired generation. A variety of innovative financing mechanisms are under development to help shorten payback periods, refinance and restructure debt, and adjust contract terms in ways that avoid undermining investor confidence. In many regions, such policies must take account of the role currently played by coal in ensuring security of supply.

Maintaining affordable electricity prices throughout the transition is paramount. In the APS, power sector investments climb steeply to 2030, but the costs of replacing coal generation and the system services it provides with low-emissions sources are more than offset by the fuel cost savings from reduced fossil fuel demand in the longer term. Appropriate policy frameworks can help ensure that the costs of these investments are recovered over a longer period, helping reduce the impact on the average cost per unit. In the APS, average electricity prices worldwide decline by over one-fifth between 2022 and 2050, though savings vary by region according to initial levels, carbon pricing and growth in electricity demand.

Accelerating coal transitions will impact workers and communities that depend on coal. For that reason, comprehensive stakeholder engagement and a set of policies to manage negative impacts, including on energy affordability, energy access and socioeconomic development, are essential. These need to cover the creation of decent work opportunities, support for workers affected by energy transitions and respect for fundamental labour principles and rights. Several countries, including Canada, the Czech Republic, Germany, Spain and South Africa, have convened national task forces or commissions to evaluate the socio-economic effects of coal transitions. The IEA has established its Global Commission on People-Centred Clean Energy Transitions to codify best practices. 

National pledges to cut emissions and decarbonise power generation, if fully implemented, would inevitably lead to job losses in the coal sector, especially in mining. In the APS, total coal employment declines from 7.8 million people worldwide today to 5.6 million in 2030. Just over half of those job losses result from a fall in coal production, with the remainder attributable to mechanisation, automation and other improvements in labour productivity. Declines in coal employment have been navigated in the past in parts of Europe and North America, and more recently in China. Managing the economic and social consequences of coal transitions is vital to enduring progress on reducing energy sector emissions. New policy approaches are proving effective, including short‐term income support, education and training, and new career opportunities for coal workers who are made redundant. At the end of 2023, just 14% of coal workers in coal-dependent countries were covered by such just transition policies, though this represents an improvement of 10 percentage points over 2022.

The social and economic impacts of transitioning away from the use of coal for power generation vary widely across and within countries, according to resource endowments, the structure of the economy, level of economic development, and the importance of the coal industry to local labour markets. National exposure to coal, as measured by our Coal Transition Exposure Index (CTEI), is highest in Indonesia, followed by Mongolia, China, Viet Nam, India and South Africa. Many coal regions in those and other emerging economies are characterised by low levels of economic diversification, limiting opportunities for alternative activities and jobs. Coal transition policies must seek to cushion the impact of job losses while supporting economic development through measures such as industrialisation or environmental rehabilitation initiatives.

Commitments to transition away from unabated coal use for power set a direction; concrete policies are needed to meet them. Reaching long-term net zero goals requires unambiguous policy settings and near-term targets, which should be reflected in upcoming NDCs. While each country’s circumstances vary, the global pledge to triple renewables and double efficiency by 2030 implies a coal transition, but this itself does not guarantee the reductions in coal emissions needed to be aligned with meeting national climate ambitions nor our collective target of limiting warming to 1.5^o C, underscoring the enduring importance of a dedicated focus on facilitating the global transition away from coal.