Asia has a unique opportunity to lead the coal phase-out by advancing policies, guarantees, transition finance, and aligned instruments.
Climate Finance Asia (CF Asia) has published a groundbreaking policy brief titled “Economic and Financial Drivers of Coal Phase-Out in Asia”, unveiling key financial and structural barriers hindering the early retirement of coal-fired power plants (CFPPs) across developing Asia. The brief calls for urgent policy and financial reforms to accelerate the coal phase-out.
This marks the first study in Asia to incorporate plant-level interviews with CFPP operators in selected developing economies—namely Bangladesh, Indonesia, Malaysia, and Pakistan—capturing a diverse spectrum of energy system maturity and coal dependency. The research is further grounded in consultations with public financial institutions and commercial banks in China and Japan, as well as multilateral development banks (MDBs).
Persistent financial and policy barriers threaten Asia’s climate goals
Coal is responsible for more emissions than any other fossil fuel, accounting for approximately 40 per cent of global fossil CO₂ emissions (WEF, 2022). In developing Asia, the challenge is especially acute: The electricity generation in Indonesia, Malaysia, Pakistan, and Bangladesh relies heavily on coal, which accounts for 9 per cent to 60 per cent of their total electricity generation and a large share of their national emissions.
Indonesia leads with nearly 60 per cent coal power in 2023 (Ember, 2024), followed by Malaysia (43 per cent in 2024) (Ember, 2025), Pakistan (18 per cent in 2023) (Ember, 2025), and Bangladesh (8.5 per cent in 2023) (Ember, 2025)
Accelerating coal phase-out in Asia is critical to achieving domestic net-zero targets and global climate goals. Many CFPPs in the region are still early in their operational lifespans, and coal continues to play a vital role in energy supply and energy security. It also holds substantial economic importance. These factors contribute to the slow pace of CFPP retirement.
The study identifies policy uncertainty, credit risk, lack of bankable transition projects, and inflexible power purchase agreements (PPAs) as major obstacles. Without targeted financial and policy interventions, these assets risk becoming long-term sources of emissions, jeopardising efforts to limit global warming to 1.5°C.
However, a well-managed transition to clean energy can enhance energy security, reduce air pollution, and unlock new economic opportunities across the region.
Country-specific challenges
- Bangladesh faces financial risks from asset devaluation, outdated grid infrastructure, regulatory gaps, and a lack of workforce protections.
- Indonesia’s coal retirement is delayed by electricity subsidies, coal price controls, and government priorities to maintain stable prices and supply.
- Malaysia struggles with high decommissioning costs, inflexible PPAs, and limited access to affordable renewable financing.
- Pakistan is hindered by high decommissioning costs, investment risks, and inadequate grid infrastructure for renewables.
Calls on policymakers
- Bangladesh should strengthen financial mechanisms, build institutional capacity, and implement inclusive workforce transition programs.
- Indonesia needs to phase out subsidies and Domestic Market Obligation policies, implement carbon pricing and green finance, and accelerate renewable energy deployment.
- Malaysia must reform PPAs, establish compensation frameworks, expand concessional financing, strengthen carbon pricing, and modernise grid infrastructure.
- Pakistan should introduce tax incentives, attract foreign investment, upgrade grids, and align energy planning with climate commitments.
Calls on banks and financial institutions
- Engage proactively in blended finance structures that combine concessional and commercial capital to improve project bankability.
- Develop and scale transition-aligned financial instruments, such as transition bonds, sustainability-linked loans, and green sukuk, with performance-based incentives.
- Strengthen internal capacity to assess and manage coal transition risks, including training on project finance, ESG integration, and impact tracking.
- Collaborate with governments and MDBs in early-stage project development to expand the pipeline of investable transition projects.
- Adopt transparent reporting and impact measurement practices to build trust and demonstrate alignment with climate goals.
“Coal remains deeply embedded in Asia’s energy systems, yet the financial architecture to support its retirement is still underdeveloped,” said Alan To, CEO of Climate Finance Asia. “This research shows that with the right mix of policy clarity, sovereign guarantees, and innovative finance tools, we can unlock capital and accelerate the shift to clean energy.”
Farhad Taghizadeh-Hesary, Chief Economist of Climate Finance Asia and lead author of the study, emphasised the urgency of coordinated action. “Our study highlights that early retirement of CFPPs is not just a technical issue but an economic and financial one. Without strong policy signals, blended finance, sovereign guarantees, and a comprehensive carbon pricing mechanism, the transition will remain stalled. Since each country’s financial, economic, and energy systems differ, solutions must be tailored locally. With the right tools in place, Asia can lead the shift to a resilient, low‑carbon future.”
This policy brief is part of a broader research initiative. CF Asia has also published a full-length report, “Economic and Financial Pathways for Accelerating Coal Power Plant Transition: Evidence from Asia,” providing detailed, on-the-ground insights from CFPP operators and financial institutions.
The report offers a comprehensive roadmap for policymakers and investors to navigate the complex landscape of coal transition in Asia, with tailored country-specific solutions to support an accelerated and just coal phase-out.
Climate Finance Asia is committed to continuing the dialogue and working closely with industry stakeholders, financial institutions, and policymakers. By fostering collaboration and sharing practical insights, CF Asia aims to advocate for and accelerate the phase-out of CFPPs across the region in a just, inclusive, and financially viable manner.
For more information or to access the full policy brief and report, visit www.climatefinanceasia.com
About Climate Finance Asia
Climate Finance Asia (CF Asia) is a mission-driven business focused on tackling the climate challenge through sustainable finance tools. Founded in 2008 as Carbon Care Asia, CF Asia is a team of experienced environmental and social development professionals across Asia that deliver high-quality advisory services on sustainable finance in the region.
Learn more at www.climatefinanceasia.com
Enquiry: info@climatefinanceasia.com
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