IEA (2022), Coal in Net Zero Transitions, IEA, Paris https://www.iea.org/reports/coal-in-net-zero-transitions, License: CC BY 4.0
Every pathway that avoids severe impacts from climate change involves early and significant reductions in coal‐related emissions. Coal is both the largest emitter of energy‐ related global carbon dioxide (CO2) – 15 gigatonnes (Gt) in 2021 – and the largest source of electricity generation, accounting for 36% in 2021, and a significant fuel for industrial use. Comprehensive, integrated policies addressing emissions from all sources are essential for climate action, but reducing emissions from coal needs to be a first‐order priority.
Coal transitions require a special focus because of coal’s high emissions intensity, growing competition from cost‐effective clean energy technologies like renewables, and deep links to jobs and development in coal‐producing regions. Coal is second only to oil in the global energy mix, and coal demand – far from declining – has been hovering at near‐record highs for the past decade. Today’s global energy crisis has led to modest increases in coal consumption in a number of countries, at least temporarily, mainly in response to sky‐high prices for natural gas. Continued high coal use is one of the most visible symbols of the challenge of aligning the world’s actions with its climate ambitions: more than 95% of current global coal consumption occurs in countries that have pledged to achieve net zero emissions. This World Energy Outlook Special Report maps out how to achieve a rapid reduction in emissions from coal while maintaining affordable and secure energy supplies, and tackling the resulting consequences for workers and communities.
The new IEA Coal Transition Exposure Index highlights countries where coal dependency is high and transitions are likely to be most challenging: Indonesia, Mongolia, China, Viet Nam, India and South Africa stand out. A range of approaches, tailored to national circumstances, is essential for the power sector, where almost two‐thirds of global coal is consumed, and in the industry sector, which accounts for another 30%. The social implications are often concentrated in specific regions: coal mining typically accounts directly for less than 1% of national employment, but around 5‐8% in coal‐intensive regions such as Shanxi in China, East Kalimantan in Indonesia, and Mpumalanga in South Africa.
The geographical concentration of coal use marks it out from other globally‐used fuels: China accounts for over half of global coal demand and the share of all emerging market and developing economies exceeds 80%, up from half in 2000. China’s power sector, on its own, accounts for one‐third of global coal demand. China produces more than half of the world’s steel and cement, and so also plays a dominant role in coal use in industry. During this decade, emerging market and developing economies’ share of historical emissions from coal‐fired power generation will overtake that of advanced economies.
Achieving clean energy transitions on the scale and speed required by national climate goals and the global 1.5°C target has dramatic implications for coal. Our analysis considers how the necessary changes can be achieved, using two key scenarios from the World Energy Outlook 2022. The Announced Pledges Scenario (APS) assumes that all net zero pledges announced by governments are met on time and in full. In the APS, global coal demand drops by 70% by mid‐century, alongside declines in oil and gas of around 40%. The Net Zero Emissions by 2050 (NZE) Scenario illustrates a path to achieve the goal of 1.5°C stabilisation in the rise in global average temperatures. In the NZE Scenario global coal use falls by 90% by 2050, and the global power sector is completely decarbonised in advanced economies by 2035, and worldwide by 2040.
If operated for typical lifetimes and utilisation rates, the existing worldwide coal‐fired fleet would emit 330 Gt of CO2 – more than the historical emissions to date of all coal plants that have ever operated. There are around 9 000 coal‐fired power plants around the world, representing 2 185 gigawatts (GW) of capacity; around three‐quarters of this is in emerging market and developing economies. Coal transitions are complicated by the relatively young age of coal plants across much of the Asia Pacific region: plants in developing economies in Asia are on average less than 15 years old compared with more than 40 years in North America.
Industrial facilities using coal are similarly long lived: for coal‐dependent heavy industries such as steel and cement, the year 2050 is just one investment cycle away. Average lifetimes for emissions‐intensive industry sector assets such as blast furnaces and cement kilns are around 40 years, but plants often undergo a major refurbishment after about 25 years of operation. Around 60% of steel production facilities globally and half of cement kilns will undergo investment decisions this decade, which to a large degree will shape the outlook for coal use in heavy industry. Without any modification to their current mode of operation, these existing assets would generate 66 Gt of CO2 emissions through their remaining lifetime.
A massive scale up of clean sources of power generation, accompanied by system‐wide improvements in energy efficiency, is key to reducing coal use for power and cutting emissions from existing assets. In the APS, global output from existing unabated coal‐fired plants is reduced by nearly 2 500 terawatt‐hours from 2021 to 2030 to get on track for national climate pledges, and 75% of this is replaced by solar PV and wind. Many of the transitions away from coal observed so far have been driven by rapid uptake of solar PV and wind; however, these have typically been in countries where electricity demand was flat or in decline. A key challenge ahead is to achieve such transitions in fast‐growing emerging market and developing economies such as India and Indonesia, where demand for electricity causes generation from coal to increase until the early 2030s in the APS even with a speedy deployment of renewables.
In the APS, around USD 6 trillion in investment is required to 2050 to reduce emissions from coal‐fired power in line with national climate targets. Around 90% of this sum is spent on low‐emissions generation, mainly renewables but also nuclear power, with the remainder for energy storage and expanding and modernising electricity grids. Governments need to set the right policy and regulatory frameworks while the private sector can provide much of the necessary investment. In the NZE Scenario, the cumulative investment required for coal transitions in the electricity sector reaches USD 9.5 trillion to 2050.
Governments and international institutions need to remove roadblocks that can prevent more cost‐effective and cleaner options from entering the energy system. Favourable economics for renewables, on their own, will often not be enough to secure rapid coal transitions. There is more than USD 1 trillion of capital yet to be recovered from today’s coal plants, which creates a potentially powerful constituency in favour of their continued operation. Moreover, many coal plants are shielded from market competition, in some cases because they are owned by incumbent utilities, in others because private owners are protected by inflexible power purchase agreements. In Viet Nam, for example, such agreements govern the operation of around half the fleet. Innovative financing mechanisms have an important role in accelerating the pace of change. Outside China, where low‐cost financing is the norm, the weighted average cost of capital for coal plant owners and operators is around 7%. Bringing this down by 3 percentage points through refinancing would accelerate the point at which owners recoup their initial investment, clearing a path for one‐ third of the global coal fleet to be retired or repurposed within ten years.
Over the period to 2030, emerging market and developing economies outside China require about USD 500 billion in investment to put them on a path to transition securely away from unabated coal in the APS and well over a trillion dollars in the NZE Scenario. The majority of this spending needs to take place in the electricity sector, where clean energy technologies are proven and often competitive. Nonetheless, emerging market and developing economies will require international capital to cover around one‐third of total investment in coal transitions. Public international actors, such as multilateral development banks, can play a vital catalytic role in raising domestic sources of finance and encouraging domestic public investment in clean energy. The transition also requires investment in the coal sector to repurpose or retrofit coal assets and to support coal‐dependent regions; financial channels need to be open to support credible transition plans. Packaging together different elements of coal transitions, as with the Just Energy Transition Partnerships in Indonesia, South Africa and other countries, can be an effective way to gain momentum, mobilise international support, and ensure overall policy coherence.
Clean energy investment in emerging markets and developing economies, excluding China for the coal transition in the Announced Pledges Scenario, 2031-2050Open
Clean energy investment in emerging markets and developing economies, excluding China for the coal transition in the Announced Pledges Scenario, 2022-2030Open
An important condition to reduce coal emissions is to stop approving new unabated coal‐fired power plants. New project announcements have slowed in the last few years, although there are still around 175 GW of capacity under construction. An immediate halt to approvals for new unabated coal‐fired power plants is a key milestone in the NZE Scenario, but there is a risk that today’s energy crisis fosters a new readiness to move ahead with such projects. Around half of the 100 financial institutions that have supported coal‐related projects since 2010 have not made any commitments to restrict such financing, and a further 20% have made only relatively weak pledges. Stepping up policy and financial support for cost‐competitive clean sources of generation, including international climate finance, is essential to close off avenues for continued growth in coal‐fired capacity.
Giving governments confidence that they can forego new investments in coal‐fired plants, and retire old plants, will require scaling up replacements not only for the electricity that coal plants produce, but also the system services they provide. A portfolio of options is required to deliver the flexibility that power systems increasingly need to ensure electricity security, and which today is provided in part by coal‐fired power plants. During the transition, coal plants that have been repurposed to run less but more flexibly, or retrofitted to co‐fire biomass or ammonia, can provide important peak capacity and load‐balancing services. Repurposing existing coal plants to operate less accounts for 60% of the CO2 emissions savings achieved in the APS; early retirements account for a further 33%.
Carbon Capture, Utilisation and Storage (CCUS) technologies open important potential to mitigate emissions from coal use in both power and industry; there are only five coal‐based CCUS projects in operation, but another 23 are currently under development. If all of these projects are developed, they would capture around an additional 35 million tonnes (Mt) CO2 each year by 2030 on top of the 5 Mt captured by existing projects. This would move deployment towards the levels anticipated for 2030 in the APS, although still far below the amounts in the NZE Scenario.
Comprehensive energy transitions can ensure affordability for consumers. The upfront investments associated with coal transitions are offset over time by lower overall system costs, because of large savings on fuel and electricity bills, alongside huge environmental gains. In the APS, total household energy bills in major coal‐consuming countries remain roughly constant as a share of disposable income, thanks to the benefits of efficiency and electrification. Replacing coal‐fired power plants with cost‐competitive renewable technologies allows average system costs per unit of electricity to fall from 2021 to 2050 in the APS, both in advanced economies and in emerging market and developing economies.
Unlike the power sector, clean alternatives to coal in some key industrial applications such as steel and cement are not yet readily available. In the short term, efficient use of materials and energy, alongside with some fuel switching, are the best ways to reduce emissions in the industry sector. But it is crucial to use the coming decade to drive the development and commercial deployment of innovative new clean energy technologies. Progress depends to a large extent on public finance to accelerate technology demonstration and diffusion. Advanced economies need to take the lead: the commitment taken at the Global Clean Energy Action Forum in September 2022 to mobilise USD 94 billion for clean energy demonstration projects is a welcome step.
Industrial materials and products are traded in global markets and producer margins tend to be thin; switching to zero or near‐zero emissions technologies could lead to a loss of competitiveness without mechanisms to compensate for the increased risks and costs. Some USD 6 trillion is required to reduce coal emissions from industry in the APS to 2050 by rolling out near‐zero emissions technologies and infrastructure, for example, to transport CO2 or low‐emissions hydrogen. Government co‐ordination and support is essential, for example via carbon contracts for difference or through policies – such as sustainable procurement – that can create demand for industrial products with a substantially lower emissions footprint.
Around 8.4 million people work worldwide in coal value chains, including 6.3 million in mining, processing and transportation; and 2.1 million in power generation. In the APS, total coal employment declines to 6.1 million in 2030, but around half of this reduction is due to continued improvements in labour productivity. Some, but not all, of these job losses can be absorbed by natural retirements. Schemes to compensate and support existing coal workers who may need assistance and retraining will be vital. However, of the 21 most coal‐ dependent countries, only five (representing less than 5% of total coal sector workers) have announced or implemented comprehensive just transition policies.
The energy transition creates millions of new clean energy jobs, but they may not be in the same places or require the same skills as the coal jobs that are lost. In the APS, clean energy employment increases from around 32 million in 2019 to 54 million in 2030. New detailed geospatial analysis undertaken by the IEA indicates that around 40% of coal miners worldwide today live less than 200 kilometres from a critical mineral mine or deposit, and that more than 99% of coal miners live in countries with a critical mineral mine or deposit. While unlikely to absorb all of the employment lost in the coal sector, critical mineral mining can provide new industrial opportunities and revenue sources for coal‐dependent companies and communities. In the APS, revenue from critical minerals exceed those from coal by 2040.
International co‐operation, public financial support and well‐designed integrated approaches that incorporate the need for people‐centred transitions will be essential in the move away from unabated coal. Coal transitions are not just about coal: they are about building the clean alternatives that can provide the same energy services affordably and securely, but without the emissions. They are also fundamentally about people, and making sure that the promise of a more secure and sustainable energy sector does not leave coal‐ dependent communities behind. This is a global effort, and there is no more important task in energy transitions than to get coal transitions right.