Coal phase-out remains a challenge in many Asian countries.

Introduction

Asia-Pacific is the world’s largest producer and consumer of coal. Countries continue to use it for the simplest economic factors: its low cost and reliability. For example, more than 40% of electricity is generated by coal-fired plants in Indonesia, Vietnam and India.

The benefits of coal appear to outweigh its cost—it is a ubiquitous natural resource, frequently subsidised and it provides the minimum amount of electric power needed. Indeed, for regions aiming to electrify rural areas, coal can appear as a cheap, stable option.

However, policymakers need to consider whether to continue relying on coal due to the multidimensional risks it poses. The ongoing climate crisis necessitates countries to opt for cleaner pathways to sustainable development.

Proponents of continued coal use must confront rising evidence against their position. Evidence shows that renewables are becoming cheaper than coal and driving economic opportunities, especially with burgeoning support from financial institutions that, in turn, makes coal’s future unsustainable.

But rapid transition to renewables could also stress existing grids and lead to blackouts or price increases. In Europe and Britain, for example, the increased use of wind and solar energy has led to significant challenges in matching electricity supply and demand in real-time to maintain system stability.

This shows that the integration of renewable energy into existing power grids requires adequate upgrades to overcome curtailment or instability.

Additionally, many mining, transport and power generation jobs could be affected by coal phase-out. If these jobs vanish faster than the workers’ ability to find new ones, social unrest could ensue.

Is it possible, therefore, to balance economic development with coal phase-out? If so, how?

The Hidden Cost of Coal

Initial economic gains from reliance on coal mask the long-term health and environmental costs the use of coal imposes. It has been estimated that outdoor air pollution – primarily from coal burning – costs Asia up to US$5tn annually in health expenses and lost labour.

For instance, coal emissions has caused respiratory diseases over Indo-Gangetic Plain and much of Northern China, leading to learning loss for children and lost days of work for adults, while also putting intense pressure on hospitals.

This is why the use of coal as a source of energy should not be approached exclusively from an economic angle. If officials are solely focusing on its cheap price, they risk ignoring the “externalities”—costs incurred by society, rather than power companies.

Meanwhile, coal leaves a long-term footprint on public finance. Many new plants risk becoming stranded assets despite government support. At the same time, building solar and onshore wind power plants is becoming cheaper than building unsubsidised new coal plants.

Global lenders and insurers, too, are limiting financing for coal, forcing developers to face higher borrowing costs.

The evidence is stacked against continued use of coal. Symptoms of the climate crisis, including flooding, heat waves, cyclones and the like are already imposing economic losses as much as 2.4% of GDP. If the global temperature rises above 1.5°C, the impact on the economy would be catastrophic.

Renewables: A Viable Alternative

But can renewables truly replace coal?

In recent years, evidence shows that solar photovoltaic (PV) module prices have declined by almost 85% since 2010.

The world’s cheapest solar power in many Chinese provinces sells at US$0.03-0.05 per kilowatt-hour, cheaper than even coal with battery storage.

Meanwhile, Vietnam added more than 17GW of solar capacity in 2021 – nearly doubling its total – after it set feed-in tariffs and the wholesale electricity price declined approximately 10% year-on-year. 

Furthermore, Bangladesh’s 100MW solar power plant in Sonagazi delivers electricity at a cost of $0.10 per kilowatt-hour, cheaper than the coal-fired Matarbari 1,200MW Ultra Super Critical Power Plant that charges $0.76 per kilowatt-hour.

As insinuated above, however, switching to renewables is not without implications.

Both wind and solar energy are inconsistent; long-term weather patterns such as monsoons and dry spells could cause operational challenges to power grids. Although batteries have significantly decreased in price, they are still marking up the overall system cost at scale.

Moreover, the integration of wind and solar energy has been poor in many archipelagic countries – like Indonesia and the Philippines – due to their fragmented geography, which makes national grid interconnection technically difficult and expensive. Besides, transmission infrastructures in these countries are still poorly developed to accommodate remote projects.

Technical barriers can be overcome with proper planning, however. Grid-flexibility strategies – including demand response, pumped storage hydropower, and superior wind and solar forecasting – can mitigate the reliance on coal “peaking” plants.

Such strategies have been pursued by various countries. Singapore’s Energy Market Authority mandates generators to provide advanced output forecasts, aiding system operators in balancing supply and demand in real time. In Australia’s National Electricity Market, regional interconnectors allow excess solar power to flow between the five regions: South Australia, Victoria, Tasmania, New South Wales and Queensland, thus decreasing the use of coal.

A Balanced Path Forward

From a practical standpoint, at this stage, perhaps it is easier for countries to manage and adjust coal projects to suit today’s standards rather than outrightly banning coal use.

Firstly, governments could phase out domestic coal subsidies and redirect those funds to grid upgrades and renewable energy in underserved rural communities. Governments could also undertake the process of retiring the oldest and least efficient coal plants first. Sri Lanka, Brunei, the Philippines, Vietnam and Indonesia have indicated intentions to phase out unabated coal in the 2040s despite ongoing struggles to finance renewable energy projects.

Secondly, carbon pricing could change the dispatch combination and move more generation to renewable. The Japanese carbon tax, officially named “Tax for Climate Change Mitigation” (launched in 2012), saw the carbon tax yield revenue jumped from JPY40bn (US$276m) in 2013 to JPY260bn (US$1.7bn) in 2016. All the carbon tax revenue has been channelled towards efforts to reduce energy-originated CO₂ emissions.

Thirdly, it is crucial to empower communities to produce, consume, store and sell renewable energy that can support energy transition and, at the same time, contribute to fighting poverty.

In Kulonprogo municipality, Indonesia, there are mini-hydro power plants in villages that successfully reduce residents’ electricity expenses. These plants were developed through a collaboration among private companies, local government, the community and tech companies.

Fourthly, a moratorium on new coal projects would enable governments to finalise accountable long-term energy strategies that are consistent with the vision of the Paris Agreement.

Fifthly, countries could collaborate together to focus on enhancing regional institutions – for example, the ASEAN Power Grid – which should help to pool resources and minimise variability.

On that note, and sixthly, countries could mobilise green financing opportunities from multilateral development banks, such as loan guarantees that lower their risk exposure. An example of this was the Green Climate Fund’s approval of a US$204m fund for projects in 46 Asian countries that allowed lenders to reduce their interest rate on green loans.

Unbiased Weighing Options

In some cases, the initial cost of solar and wind energy could exceed the sunk cost of the existing coal plants, especially where financing is scarce. The reliability of renewable grids remains an issue until storage or demand-management alternatives are used, and large-scale renewables typically use more land per megawatt than coal.

Still, these challenges seem to be manageable in the next 20 years. The IEA’s 2023 World Energy Outlook notes that in significant parts of Southeast Asia, new solar-plus-battery projects could be 15-20% cheaper than existing ones. There are also projections that continued improvements would lead to reductions in the cost of renewable energy by at least 25% by 2030.

The pressure is not imaginary. By 2050, an unmitigated warming in Asia could reduce economic output by 5% owing to crop failures, heat stress on labour and damage to infrastructure due to storms. Would governments gamble on coal today and risk climate disasters tomorrow?

By not transitioning, countries are stacking the odds tremendously against themselves: Typhoon Yagi, which struck Southeast Asia and South China in early September 2024, caused US$15bn in economic damages across the Philippines, Vietnam, Laos, Thailand and southern China. In the future, climate events would only become more frequent and severe without aggressive but systematic decarbonisation.

The Asia-Pacific region must critically rethink its reliance on coal. While coal has long supported economic growth and electrification, its hidden costs – health burdens, environmental damage and rising climate-related losses – are becoming too great to ignore.

Although renewables offer a viable path forward, challenges like weak grids, fragmented geographies and integration issues mean the transition must be carefully managed, not rushed. Some practical solutions are already offered above, including instituting a moratorium on new coal projects, redirecting coal subsidies to grid upgrades, increasing rural access to renewables, enhancing regional cooperation and expanding access to green financing. With strategic planning, the region can shift toward a cleaner energy future without sacrificing economic stability.

***

Irvan Tengku Harja, Researcher at The Habibie Center
This article was published on stratsea.com on July 18, 2025