One-third of global coal capital at risk from energy transition

The Asia-Pacific region produces close to 80 percent of the world's coal and is home to the largest coal exporters (Australia and Indonesia) and importers (India, Japan, China). As the global energy transition accelerates, the question for the region is not whether coal demand will decline, but how fast, for whom, and what happens to the capital already invested.

In a new IMF working paper with John Spray and Sneha Thube, "The Economic Implications of the Energy Transition in Asia-Pacific" (WP/26/1), we use a global dynamic computable general equilibrium (CGE) model to quantify these risks across different transition pathways.

We first characterize uncertainty in the speed and composition of the global energy transition using projections from 3,000+ scenarios from Integrated Assessment Models under different global warming pathways. Then, using the IMF-ENV global CGE model, we assess how different transition pathways affect fossil fuel demand, investment, and macro-financial risks across the region.

Uncertainty in the speed, magnitude, and composition of the energy transition poses major policy risks. Under our baseline (2.7°C warming), coal demand falls about 15 percent by 2035. Under a Below 2°C pathway, the decline reaches 45 percent. If investment proceeds under baseline assumptions and policy ambition later ramps up, roughly ~32% of global coal capital stock and ~23% of Asia-Pacific coal capital stock could become stranded by 2035.

Policy design matters. Coal-targeted policies can increase natural gas capital by ~18% globally and ~14% in Asia-Pacific, while a fuel-agnostic transition reduces gas capital by ~16% globally and ~20% in Asia-Pacific. Country-level impacts diverge sharply, depending on extraction costs, the quality and carbon content of fossil fuels, critical mineral endowments, and the adoption of clean technologies. Low-cost producers like Australia gain market share even as total revenues decline. Economic diversification, fiscal discipline, and strategic investment in critical minerals and renewables can help cushion these impacts and create new growth opportunities.

Our results underscore why clear and credible transition pathways, not just targets, matter for investment decisions, fiscal planning, and macroeconomic and financial stability.

This paper builds on recent IMF analytical work and Article IV country engagements, including Mitra et al. (2025) on climate change scenarios for assessing physical and transition risks; Chateau et al. (2025) on the IMF-ENV model; and IMF (2024), which applies these to Australia — the world's largest coal exporter by value.

Read the full paper here.

The views expressed here are my own and do not necessarily represent the views or policies of the IMF, its Executive Board, or its Management.