The Economic Implications of the Energy Transition in Asia-Pacific

IMF Working Papers, January 9, 2026

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The paper examines the economic effects of the global energy transition and the large uncertainty surrounding future fossil fuel demand on countries in the Asia-Pacific region.
Baseline projection: coal demand is expected to shrink by 15 percent by 2035.
Alternative outcomes: depending on global policy ambition and technological uptake, the decline in coal demand could be as large as 45 percent.
Stranded asset risk (model simulations):
- One-third of global coal capital stock could become stranded if the speed of the transition is underestimated.
- One-quarter of Asia-Pacific coal capital stock could become stranded under the same scenario.
Global natural gas faces both upside and downside risks depending on transition design:
- When energy policy targets coal alone, natural gas extraction benefits, prompting an 18 percent rise in capital stock.
- A fuel-agnostic transition would reduce gas capital stock by 16 percent.
Distributional impacts across countries:
- High-cost coal exporters face early losses.
- Low-cost coal producers could potentially gain market share.
- Some gas exporters may benefit under select scenarios.
New growth opportunities:
- Countries with strong critical mineral endowments and green energy potential may gain from the transition.

Baseline versus high-transition scenarios:
- Baseline: coal demand down 15 percent by 2035.
- High-transition / rapid adoption scenario: coal demand decline up to 45 percent by 2035.
Policy design sensitivity:
- Coal-targeted policies (not fuel-agnostic) can shift demand toward natural gas, increasing gas capital stock by 18 percent.
- Fuel-agnostic transitions (technology- and fuel-neutral) can reduce gas capital stock by 16 percent.
Stranded capital sensitivity:
- Under underestimated transition speed, up to one-third of global coal capital stock is at risk of becoming stranded.
- Under the same conditions, one-quarter of Asia-Pacific coal capital stock is at risk.

Asia-Pacific heterogeneity:
- Outcomes vary by cost structure and resource endowments.
- High-cost coal exporters: early economic losses and elevated adjustment needs.
- Low-cost coal producers: potential to retain or expand market share in some scenarios.
- Gas exporters: outcomes ambiguous—some scenarios yield benefits.
Growth and diversification opportunities:
- Critical minerals and green energy potential create new avenues for growth and export diversification for some countries.

Manage transition speed and communication to reduce stranded asset risk, especially in coal capital.
Account for policy-design effects on fuel substitution (coal-targeted vs. fuel-agnostic) to anticipate impacts on natural gas sectors.
Implement country-specific adjustment strategies:
- Support high-cost coal exporters with fiscal, labor, and structural policies to manage early losses.
- Help low-cost producers and potential gas beneficiaries manage market shifts and volatility.
- Promote investment and policy frameworks to leverage critical mineral endowments and green energy potential for new growth.
Monitor and model capital stock exposure across fossil fuels to inform transition planning.

Source: John A Spray, Sneha D Thube, and Alice Tianbo Zhang; January 9, 2026.