Global coal demand to hit a ‘historic turning point’ in 2026, says IEA

Global coal demand is expected to decline by 2026 after reaching an all-time high this year, according to the latest edition of the International Energy Agency’s (IEA) annual coal market report – the first time that the report has predicted a drop in global coal consumption over its forecast period.

According to the agency, global demand for coal will rise by 1.4% in 2023, surpassing 8.5 billion tonnes for the first time – although the increase masks stark differences among regions. Consumption is on course to decline sharply in most advanced economies in 2023, including record drops in the European Union and United States of around 20% each, the IEA said. But those declines will be largely offset by robust demand in emerging and developing economies, increasing by 8% in India and by 5% in China in 2023 due to rising demand for electricity and weak hydropower output, the IEA said in its Coal 2023 report.

The report 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 coming online in the three years to 2026, the agency said.

Renewables capacity expansion

More than half of this global renewable capacity expansion is set to occur in China, which currently accounts for over half of the world’s demand for coal. As a result, Chinese coal demand is expected to fall in 2024 and plateau through 2026. That said, the outlook for coal in China will be significantly affected in the coming years by the pace of clean energy deployment, weather conditions, and structural shifts in the Chinese economy.

The IEA report comes a day after all 198 parties at the COP28 climate summit in Dubai agreed to transition away from fossil fuels to achieve net zero by 2050 and triple renewable energy capacity by 2030.

The report’s 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, the IEA observed.

“We have seen declines in global coal demand a few times, but they were brief and caused by extraordinary events such as the collapse of the Soviet Union or the Covid-19 crisis. This time appears different, as the decline is more structural, driven by the formidable and sustained expansion of clean energy technologies,” said Keisuke Sadamori, IEA Director of Energy Markets and Security. “A turning point for coal is clearly on the horizon – though the pace at which renewables expand in key Asian economies will dictate what happens next, and much greater efforts are needed to meet international climate targets.”

Global forecast

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 agency noted.

The report finds that the shift in coal demand and production to Asia is accelerating. This year, China, India and Southeast Asia are set to account for three-quarters of global consumption, up from only about one-quarter in 1990.

Consumption in Southeast Asia is expected to exceed for the first time that of the United States and that of the European Union in 2023. 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.

Met coal outlook

Meanwhile, China, India and Indonesia – the three largest coal producers globally – are expected to break output records in 2023, pushing global production to a new high in 2023. These three countries now account for more than 70% of the world’s coal production.

According to the IEA, metallurgical (met) coal – which includes coking coal (hard, medium, and semi-soft) and coal for pulverised coal injection (PCI) and is a primary ingredient in steelmaking – showed a slight decline globally in 2022, down by 2 Mt to 1 086 Mt. Amid that year’s energy market rollercoaster, Russia (down 3 Mt, or 4.1%), Korea (down 2 Mt, or 6%), and the rest of the world (down 10 Mt, or 12%) accounted for the greatest reductions, the IEA said.

The estimate for met coal in 2023 shows an overall surge in consumption of 1.4% to 1 101 Mt. This comes hand in hand with energy prices declining almost to precrisis levels and higher steel production in some countries. The increase is fuelled by growth in China and India, which more than offset declines in the European Union and other world regions, the IEA said.

Global coal trade is expected to contract as demand declines in the years ahead. However, trade will reach a new high in 2023, driven by strong growth in Asia. Chinese imports are on track to reach 450 million tonnes, which is more than 100 million tonnes above the previous global record set by the country in 2013, while Indonesia’s exports in 2023 will be close to 500 million tonnes – also a global record, the IEA said.