Global coal demand is expected to decline by 2026, according to the International Energy Agency’s annual coal market report—Coal 2023 — released on Friday.

Though global coal demand is rising by about 1.4% in 2023, IEA expects global coal demand to fall by 2.3% by 2026 compared with 2023 levels, even in the absence of governments announcing and implementing stronger clean energy and climate policies. This decline is set to be driven by the major expansion of renewable energy capacity in the three years to 2026, the IEA has projected.

The likely fall in coal demand is significant in view of the UAE Consensus agreed upon by nearly 200 countries at COP28 in Dubai on December 13. The consensus is to transition away from fossil fuels, in a just, orderly and equitable manner, and accelerating action in this critical decade to achieve net zero emissions by 2050.

“The projected decline in global demand for coal – which is currently the largest energy source for electricity generation, steelmaking and cement production, but also the largest source of carbon dioxide (CO2) emissions from human activity – could mark a historic turning point. However, global consumption is forecast to remain well over 8 billion tonnes through 2026, according to the market report. To drive down emissions at a rate consistent with the goals of the Paris Agreement, the use of unabated coal would need to fall significantly faster,” the report warned.

Coal consumption in most advanced economies in 2023 is on course for a sharp drop, including record reductions in the European Union and United States of around 20% each, the report projected. Demand in emerging and developing economies remains very strong, increasing by 8% in India and by 5% in China in 2023 due to rising demand for electricity and weak hydropower output, the IEA added.

More than half of this global renewable capacity expansion is set to take place in China, which currently accounts for over half of the world’s demand for coal. Chinese coal demand is expected to fall in 2024 and plateau through 2026, which leaves coal demand rising only in India and Indonesia at the end of that period.

Through 2026, India and Southeast Asia are the only regions where coal consumption is poised to grow significantly. In advanced economies, the expansion of renewables amid weak electricity demand growth is set to continue driving the structural decline of coal consumption.

“We forecast that China’s coal consumption will fall in 2024 and plateau through 2026, with hydropower output set to recover while electricity generation from solar PV and wind increases significantly. However, the pace of economic growth in China and its coal use in the coming years is subject to uncertainty,” the report said.

The report projects that India will become the driving force behind the upward pressure on global coal demand through to 2026, even if the global trend is decided in China. Until 2026, Indian coal demand is set to rise by 3.5% annually to 1 397 Mt, with growth in every coal grade. India has a target for renewables to achieve a 50% share of its power generation mix by 2030, thereby reducing the power sector’s dependency on coal.

“Nonetheless, additional coal-fired generation will still be required to meet the growth in demand and ensure security of supply. Against this background, India’s latest National Electricity Plan foresees between 19 GW and 27 GW of additional coal capacity up to 2027, depending on the scenario, despite about twice the capacity already being in the project pipeline. For the next three years, our model forecasts annual growth in coal consumption for power generation of 2.4%, whereas renewable generation is forecast to grow by 12% annually,” IEA has projected.

Cement production will be one of the main drivers of growth coal and lignite demand. For example, the Adani Group, the largest industrial conglomerate in India, is aiming to double its production capacity by 2028 up to around 140 Mtpa. The market leader UltraTech is currently running a capacity of about 132 Mtpa and is seeking to reach 160 Mtpa soon. Together with consistently increasing steel demand driving consumption of steam coal (direct iron reduction) and met coal (blast furnace route), we estimate non-power coal consumption of 391 Mt in 2026, growing 21% over the three-year period, IEA projected.

“Coal is here to stay for India. We do not see it disappearing or even declining significantly. India has been clear about this mainly due to its rising development needs,” a senior official of the environment ministry said during COP28.

The UAE consensus calls on countries to also accelerate efforts towards the phase-down of unabated coal power. Abatement means near total capture and storage of emissions.

“Renewable energy capacity additions may force global coal demand to peak this year, however, it’s not fast enough. The speed at which the decline happens depends on the ability of developed countries to support the developing world. Countries must find a way to move past phase-down and towards a complete phase-out,” said Vibhuti Garg, South Asia Director, Institute for Energy Economics and Financial Analysis (IEEFA).