Asia still burns 1,667 GW of coal, three-quarters of global capacity. The technique for closing these power plants exists. Financial arrangements can make certain early closures profitable, but they alone constitute neither the sole bottleneck nor a universal solution.
The essentials
- Asia accounts for 78% of global coal capacity (1,667 GW); the world’s exit from coal depends primarily on Asia, while also requiring rapid closures in other regions.
- Long-term power purchase agreements (PPAs) offer a concrete mechanism: renewable PPAs can finance transition costs, including the residual value of coal assets in certain structures, according to IEEFA.
- According to IEEFA, over 800 power plants in emerging economies could be profitably replaced by renewables; in Thailand, closing a single 2.6 GW plant avoids 21 million tonnes of CO₂ per year.
- A central issue is the distribution of costs and risks among governments, international investors, and coal-dependent regions.
- If these mechanisms do not scale rapidly, global climate objectives become difficult to achieve.
1,667 GW: Why Asia is the only terrain that matters
Coal closure in Europe or the United States is already underway. It no longer weighs on global climate trajectories. Asia, by contrast, concentrates installed capacity so massive that decisions made in major Southeast Asian cities over the coming years will strongly shape global climate trajectories.
These 1,667 GW of Asian capacity are not an abstraction. They are thousands of power plants, often built in the 2000s and 2010s to fuel rapid industrialization, many of which have not yet recovered their debt. Closing a plant before debt is fully repaid generates a net loss for its operator. Without compensation, operators run them to the end, and governments, often shareholders, encourage them to do so.
The debate has stalled on this point for years. Climate transition plans assumed that the carbon price signal would be enough to make coal uncompetitive against renewables. In several Asian regions, this carbon price signal is absent or remains insufficient. Coal remains competitive because existing supply contracts guarantee operators a stable revenue stream, independent of market prices.
What a PPA can do that a carbon tax cannot
A PPA (power purchase agreement) is a long-term agreement by which a buyer—a government, company, or aggregator—commits to purchase electricity from a producer at a fixed price over a set period. The instrument is standard in renewable energy financing. IEEFA examined transactions combining renewable PPAs, coal replacement, and early closure.
The mechanism works as follows. A coal plant with ten more years of debt to repay needs minimum revenue to avoid generating a loss. A renewable PPA can link new capacity to a schedule for coal reduction and then closure. The renewable project’s revenues can finance compensation for the debt and residual value of the coal asset. In return, the plant stops producing, and the corresponding capacity is replaced by renewables.
The difference from a carbon tax is structural. A tax raises production costs but does not solve the residual debt problem. It can make a plant unprofitable without financing its closure or compensating workers. A renewable PPA can help finance compensation and the exit schedule in a coal-to-renewables arrangement. For operators, the logic is one of asset buyout rather than penalty.
According to IEEFA, over 800 power plants in emerging economies could be profitably replaced by renewables. Plants predating 2015 generally have simpler debt structures and ownership that is often less fragmented.
Thailand as a unit of measurement
The Thailand data provided in the report warrants close attention. A single 2.6 GW plant, a mid-sized facility for a Southeast Asian coal site, generates 21 million tonnes of CO₂ per year. By comparison, this is on the order of annual emissions from a country of several million people.
This figure is not meant to impress. It serves to calibrate the stakes of the financial decision. If the cost of a closure PPA for this plant runs to hundreds of millions of dollars spread over ten years, and if this arrangement allows avoiding 210 million tonnes of CO₂ over the decade, the cost-benefit ratio becomes legible for an institutional investor or multilateral climate fund.
This is precisely the calculation that banks and regional developers seek to formalize. OCBC, in its analysis of the transition market, underlines that international climate finance—green funds, sovereign green bonds, partial credit guarantees—can lower the cost of capital in these arrangements to the point of making them attractive without additional direct subsidy. The lever is not public money alone: it is the reduction of perceived risk for private investors.
This point matters in the broader context of carbon deindustrialization. As analysis of displaced emissions shows, economies that outsource their manufacturing export their emissions to other parts of the world without making them disappear. The closure of Asian coal therefore directly touches economies that import goods produced with that energy.
Cost distribution: the real bottleneck
Closure PPAs exist as pilots. The ADB’s ETM has conducted pilot work in several Asian countries, while JETPs are distinct partnerships. Indonesia and Vietnam signed JETPs in 2022; the Philippines are not confirmed as signatories to a JETP by sources consulted. The scaling-up remains slow, for the reason the Energy Shift Institute report identifies as central: the distribution of financing among parties.
Three categories of actors have divergent interests. Host governments want to limit their budgetary exposure while maintaining electrical grid stability. International investors—pension funds, development banks, green bond investors—seek assets with predictable returns and limited country risk. Coal-producing regions, notably in Indonesia, Vietnam, and Thailand, have local economies whose transition is not directly covered by closure PPAs.
This third point is most underestimated. An arrangement can compensate the operator and include worker transition costs, though their actual coverage depends on the contract and context. European experiences with coal transition—Germany, Poland, Spain—showed that closing a plant without territorial reconversion programs generates lasting political resistance that can block or delay subsequent closures.
In Asia, this risk is amplified by state structures where provincial governments often have less autonomous budgetary capacity than their European counterparts. Indonesia is the clearest example: Kalimantan represents a major share of coal production, and mining revenues finance a substantial portion of the local budget. Closure arrangements raise the question of distinct territorial compensation.
Arbitrations for the coming decade
Analyses of Paris-compatibility situate coal exit toward 2040 outside the OECD, without this trajectory appearing in the Paris Agreement. Renewables are competitive and their costs continue to fall. Financial transition mechanisms will need to reach sufficient scale within a short timeframe to support this transition.
Two scenarios emerge toward 2040, without any precise figures allowing their probability to be estimated rigorously today.
In the first, JETPs and PPA mechanisms scale from 2027-2030, driven by a combination of subsidized multilateral financing, partial guarantees reducing risk for private investors, and bilateral agreements with major importing economies. This scenario assumes developed countries continue the increase in climate finance they have begun to mobilize: the collective goal of 100 billion dollars annually was exceeded in 2022 with 115.9 billion, but two years past the initially set deadline. It also assumes Asian governments accept opening their electricity markets to competition that weakens national coal operators.
In the second scenario, international climate finance remains fragmented, JETPs struggle to convert into real transactions, and coal operators tend to run their assets through complete amortization. Renewables then deploy alongside coal, without replacing it. This situation corresponds to a trend observed in several Asian regions.
Water will cost Asia 12% of its GDP by 2050 if current climate trajectories persist. The coal transition and Asia’s climate habitability are linked: many coal-dependent Asian countries are also exposed to rising climate risks, though exposure varies significantly by country and hazard. This double constraint creates, paradoxically, growing domestic pressure for transition in Asian public opinion, which governments cannot indefinitely ignore.
The signals to watch in coming years are precise: the conversion of JETP commitments into real disbursements, the emergence of first structured closure PPA transactions at commercial scale, and the capacity of regional development banks, notably the Asian Development Bank, to take on first-loss risk that private investors refuse to shoulder alone.
The actors testing the model
Several institutions are working on this financial architecture. Teams at the Asian Development Bank have developed transition instruments under their Energy Transition Mechanism (ETM) initiative. OCBC, in work published alongside the May 2026 report, examines how the region’s commercial banks can structure transition portfolios without bearing the entirety of country risk on their balance sheet.
This financial structuring work is technical, little visible, and yet central. Major climate policy decisions are made at COPs and in capitals. But the pace of plant closures will largely depend on specialized teams’ ability to build arrangements that hold legally and economically in each local context.
A useful analogy is green bonds. It took roughly a decade, from 2007 to 2017, for the green bond market to move from a few pioneering issuances to a standardized, liquid asset class. The closure PPA market is today roughly where green bonds were in 2010. One major obstacle remains standardization: contractual terms recognized by jurisdictions, accepted valuation methods, and regulatory jurisprudence in host countries.
The Energy Shift Institute’s work aims to provide a replicable operational framework, not merely a proof of concept. If this framework stabilizes in the near term, scaling becomes possible. Without replicable mechanisms, preparation costs can slow deployment of transactions affecting over 800 potentially eligible plants.
The open question is the political will of creditor countries and multilateral institutions. The financial mechanisms exist or can exist. They assume that advanced economies, those that historically emitted most and that today import goods produced with Asian coal, accept bearing part of the risk they contributed to creating.
Sources
- Energy Shift Institute & OCBC Banking and Financial Services, Asia’s Coal Power Companies – Report and Appendix, May 2026. Link to report
