SDG 7: Affordable and Clean Energy | SDG 8: Decent Work and Economic Growth | SDG 13: Climate Action
Ministry of New and Renewable Energy (MNRE) | Ministry of Coal
The IMF Working Paper (WP/26/1) titled ‘The Economic Implications of the Energy Transition in Asia-Pacific’ analyzes the profound economic shifts facing the Asia-Pacific region as the global energy transition accelerates. While global coal demand is projected to shrink by at least 15% by 2035, the report warns of a massive “uncertainty gap”—under ambitious climate scenarios, coal demand could plummet by 81% by 2050. This volatility creates a high risk of stranded assets, with potentially one-quarter of Asia-Pacific’s coal capital stock becoming economically unviable if the transition is faster than anticipated.
Key regional insights include:
The “Stranding” Risk: One-third of global coal capital is at risk; countries over-investing in new coal infrastructure today face significant fiscal and financial stability threats.
Resilience in Transition: Low-cost exporters (like Australia) may temporarily gain market share as high-cost producers exit, but overall revenues will decline.
The Mineral Upside: Countries with vast reserves of critical minerals (lithium, copper, nickel) are positioned to offset fossil fuel losses, provided they attract sufficient investment in extraction and processing.
Policy Clarity: The report emphasizes that “wait-and-see” approaches increase the cost of adjustment; clear, technology-neutral decarbonization signals are essential for guiding private capital.
What is ‘Stranded Asset’ risk in the energy sector? It refers to infrastructure, such as coal mines or thermal power plants, that suffer from premature write-downs or devaluations because they can no longer earn an economic return. This typically happens due to a combination of stricter environmental regulations, the falling cost of renewable alternatives, or shifts in global demand that make the asset’s operation more expensive than its market value.
Policy Relevance
India is a central player in this transition as both a major producer and consumer of coal. The IMF findings underscore the urgency of India’s 2030 Nationally Determined Contribution (NDC) targets.
Strategic Impact for India:
Managing the Coal Exit: As a major coal importer, India’s shift toward renewables will drastically alter its trade balance. However, the domestic coal sector faces significant social and regional risks, requiring “Just Transition” policies for coal-dependent states.
Critical Mineral Diplomacy: India’s significant reserves of minerals essential for green tech provide a strategic hedge. Policy should focus on domestic processing to avoid replacing fossil fuel import dependency with mineral import dependency.
Competitiveness of Renewables: With the cost of solar and wind increasingly undercutting coal in India, the policy focus must shift from “subsidizing” green energy to “grid integration” and storage solutions like green hydrogen.
Labor Market Adaptation: The transition will require active labor market policies to reskill workers from the fossil fuel value chain into the emerging green economy.
Follow the full report here: The Economic Implications of the Energy Transition in Asia-Pacific