From Coal Dependence to Clean Energy: Managing Transition Risks in Asia-Pacific Economies

The IMF study finds that Asia-Pacific, which dominates global coal production, faces major economic risks from the energy transition, with up to one-quarter of regional coal assets at risk of becoming stranded if climate policies accelerate. At the same time, countries with low extraction costs, diversified economies, and growing clean-energy and critical-minerals sectors can better manage the transition and capture new opportunities.

Produced by researchers at the International Monetary Fund (IMF) and drawing on analysis and data from institutions such as the International Energy Agency (IEA), the Intergovernmental Panel on Climate Change (IPCC), and the International Renewable Energy Agency (IRENA), the paper examines how the global shift away from fossil fuels could reshape Asia-Pacific economies. The region sits at the heart of the transition: it produces nearly 80 percent of the world’s coal and includes both the largest exporters, such as Australia and Indonesia, and the largest importers, including China, India, and Japan. As climate commitments strengthen and renewable energy becomes cheaper, the Asia-Pacific region faces particularly high economic stakes.

Why the Future of Fossil Fuels Is So Uncertain

The paper stresses that while the direction of travel is clear, towards cleaner energy, the speed and depth of the transition remain highly uncertain. Renewable energy costs have fallen dramatically, making solar and wind cheaper than fossil fuels in many countries. Global electricity systems are increasingly electrified, and climate pledges such as the Paris Agreement and the G7 commitment to phase out unabated coal power signal a long-term decline in fossil fuel use. Yet projections vary widely. According to IPCC scenarios, global coal production could fall sharply under ambitious climate action or remain close to current levels if policies weaken. Oil and natural gas face similar uncertainty, partly because they emit less carbon than coal and continue to be used in transport and industry.

Measuring the Economic Risks

To assess what this uncertainty means for Asia-Pacific economies, the authors use the IMF-ENV global economic model, which captures trade, investment, emissions, and sectoral change across countries. Several scenarios are explored, ranging from current policies to stronger climate action focused on coal or on all fossil fuels. The results point to large risks, especially for coal. Even under existing policies, global coal demand is projected to fall by around 15 percent by 2035. Under more ambitious scenarios, the decline reaches about 45 percent. If companies invest assuming today’s policies continue but governments later accelerate climate action, around one-third of global coal capital could become “stranded”, that is, rendered uneconomic before the end of its expected life. Asia-Pacific would bear roughly a quarter of these losses, exposing firms, banks, and governments to financial stress.

Winners, Losers, and Shifting Market Power

The transition does not affect all countries equally. As global coal demand shrinks, production increasingly concentrates among low-cost producers. Australia and Indonesia tend to gain market share because their coal is cheaper to extract and transport, even as total demand falls. High-cost producers face faster declines. However, higher market share does not mean higher income: falling prices mean export revenues decline even for the most competitive suppliers. Natural gas shows a more mixed picture. If climate policies target coal alone, gas can temporarily benefit as a substitute. But if policies limit all fossil fuels, gas investment also falls, highlighting how policy design shapes outcomes.

Lessons from Australia, and Beyond

Australia illustrates both the risks and the ways countries can adapt. As the world’s largest coal exporter by value, it faces falling employment and investment in coal and gas under most scenarios. At the same time, renewable electricity, critical minerals, and clean technologies expand. Australia’s relatively low extraction costs provide some resilience, but more important are its broader strengths: a diversified economy, strong institutions, and prudent fiscal management. Revenues from past resource booms have helped preserve fiscal space, while targeted policies are encouraging growth in renewables, battery storage, clean hydrogen, and critical minerals.

The paper’s central message is that uncertainty itself is the biggest economic challenge. Without clear and credible policy signals, investors risk stranded assets and governments face fiscal and financial instability. Yet the transition also offers opportunities for countries that diversify early, invest in clean technologies, and support workers through the adjustment. Sound macroeconomic policies, careful use of green industrial policy, and close monitoring of financial risks will be crucial for Asia-Pacific economies as the global energy system continues to change