As India explores a gradual phase-down of coal and transition to renewable energy, there are potential gains in the form of improved health, ecology, and environment but the challenges around the life and livelihoods of coal mine communities remain unaddressed. In this post, Chowdhary and Goswami outline key recommendations to ensure an equitable and efficient transition for the country’s coal sector.

India’s coal economy faces a complex policy challenge – reconciling its role as the backbone of energy security and industrial growth, with the imperative of decarbonisation and global climate commitments. As domestic coal production and commercial mining grow, policymakers are being called upon to design a forward-looking transition strategy that is economically sound, environmentally sustainable, and socially just. In this post, we analyse the current state of the supply and demand of coal, and institutional and pricing reforms pertaining to the sector. Further, we outline key recommendations to ensure an equitable, and efficient transition for India’s coal sector.

The decarbonisation and justice dilemma

India is the world’s second-largest producer of coal. Over 85% of the country’s domestic coal consumption, largely attributable to the power sector, comes from indigenous sources. However, coal is also responsible for around half of India’s carbon dioxide (CO₂) emissions, making it a focal point in the decarbonisation agenda. Hard-to-abate sectors like steel and cement remain heavily reliant on coal, whereas alternatives such as green hydrogen, natural gas, etc., are either still at a nascent stage of development or costlier.     

As India explores a gradual phase-down of coal and transition to the renewable energy to achieve its net-zero ambition of 2070, there are potential gains in the form of reduced air pollution in and around coal mines that cause health hazards for coal mine workers, and most importantly, facilitate climate mitigation. However, there will be a direct impact on jobs in coal and its allied sectors. A shutdown of coal mines could mean a job loss for the 13 million people who are directly or indirectly employed in the coal-based ecosystem (National Foundation of India, 2021). In mining districts, communities have evolved over generations around coal operations, with limited alternative economic opportunities. For such regions, a transition away from coal is not merely an environmental policy, but it also represents a profound socioeconomic transformation. Hence understanding the trajectory of coal demand in the coming decades is crucial for timely planning for a people-centric, just energy transition.

Besides, a move away from coal will potentially increase freight charges. At present, coal freight rates are set higher than the actual cost of transportation. The surplus revenue generated is used to offset the losses incurred from passenger services, which are often priced below cost to maintain affordability for the public. As the revenue from coal freight goes down this cross-subsidisation will also reduce.  Similarly, coal cess supports the GST compensation between the Centre and states, facilitate local area development through District Mineral Fund (DMF), among others.

Moreover, if domestic coal production reduces without concomitant rise of electricity generation from alternative sources, reliance on imported coal will increase – putting upward pressure on electricity prices.

Demand-supply landscape

Despite unprecedented growth of renewables in India – 2.8GW in 2014 to 111 GW in 2025 – the coal demand continues to surge (5.5% growth in 2024), catering to the rising industrial and thermal power capacities in the country. India’s coal demand crossed 1.3 billion tonnes by the end of FY2024-25 – an all-time high – of which around 76% is met domestically. Coal India Limited (CIL), a government-owned “Maharatna”¹ company, contributes over three-fourths of domestic production, and continues to invest in new mines and reviving older ones, even at the risk of future stranded assets. With rising coal production from CIL and increased private sector mining by means of auctioning of new coal mines, coal imports have reduced by around 8% in FY2024-25. Looking at the current growth aspirations, industrialisation and energy self-sufficiency targets, the coal demand is expected to grow for the next two decades.

Coal, a geopolitical commodity, influence bilateral relations between India and its coal importing nations like Indonesia (major supplier of thermal, coking coal), South Africa (major supplier of thermal coal), Australia (supplier of high-quality coking coal with little volatility), Russia (a growing supplier of high-quality coking coal), and the US (another supplier of coking coal from whom volatility can increase in the near future).

Coal pricing reform and market instruments

Coal pricing is a complex subject in India driven by “mixed market” approach, which is a combination of administered pricing (for core sectors) and market-driven price (through e-auctions) for other consumers. The biggest coal producer in the country, catering 3/4^th of India’s coal demand, Coal India Limited (CIL), sets the notified or administered price for each grade of coal, being supplied to regulated sectors like power and steel. For non-regulated sectors, CIL sells coal through monthly e-auctions to discover market-based prices.

The pricing of privately mined coal is not administered centrally. Instead, it is determined by the specific contractual terms of the coal block allocation, which is typically done via auctions, benchmarked by the National Coal Index (NCI) – a tool designed to support transparent revenue-sharing mechanisms between the private miners and the state government from whose jurisdiction land the coal is mined.

However, the co-existence of these complex pricing systems limit “real price” discovery and creates systemic inefficiencies. Moreover, pricing and linkage contracts ought to be designed in a way that reduces leakage, defaults, and under-deliveries.

Transition pathways and recommendations

In the short to medium term, we need to view coal as a reliable, secure complement to intermittent renewable energy sources, enabling round-the-clock supply. To facilitate such a complementary role for coal, the following reforms are recommended:    

• A calibrated framework of pricing reform, through an open market-based regime, to prevent misallocation and ensure pricing parity. The Ministry of Coal is planning a Coal Trading Exchange (CTE) to facilitate competitive procurement. There is also a need for improved enforceability and design of linkage contracts to reduce leakage, defaults, and under-deliveries.
• The coal sector faces significant logistical challenges, ranging from rail infrastructural bottlenecks to underdeveloped inland waterways, and higher costs due to dependence on trucks for first/last mile connectivity, and so on. Such challenges can be addressed by co-creating “fully digitalised multi-modal logistic systems” for the coal supply chain. New age Internet of Things (IoT), GPS, and AI-enabled systems could rationalise coal linkages and optimise sources, for better inventorisation and real-time dispatch.
• Coal companies must have a strategic diversification plan to sustain their business in long term. They possibly diversify into other minerals exploration in and around their original area of influence, as they understand the mining business and the local economy fairly well. It is also a good coincidence that, in most cases, coal-bearing regions also have other major minerals such as iron ore, bauxite, copper and limestone. Special emphasis could be laid on the extraction of “critical minerals”, the demand of which is increasing due to a rise in demand for electric vehicle batteries and solar applications like solar PVs (photovoltaic technology). There is a huge social opportunity to re-employ or re-settle the impacted coal mine workers in and around such new and emerging critical minerals mining areas.
• Within coal sector diversification, Government of India has already announced a target of gasifying 100 million tonnes of coal by 2030. This can yield fuel, petrochemicals, and pharma ingredients locally at a cheap price instead of expensive imports. Clean coal technologies have vast potential of catalysing a hydrogen economy. Coal can be a low-cost feedstock for hydrogen based on which a grey hydrogen economy can be established until electrolyser costs fall and a green hydrogen economy takes over.
• India needs a strategic plan to repurpose the loss-making, discontinued or abandoned coal mines for social welfare and provision of better job opportunities locally, thereby ensuring sustainable growth of the impacted communities. A robust socioeconomic people-centric transition framework must be developed wherein coal companies ensure reskilling and redeployment towards improved “life and livelihoods” of the impacted communities. Ministry of Coal and Coal Controller of India (CCO) have started engaging with civil society organisations and think tanks to crowdsource ideas and are exploring possibilities of creating new avenues for localised growth and development.
• Health and environment safety is another area of concern. While there are organisations like the Director General Mine Safety (DGMS) mandating real-time methane measurements for underground mining, and Pollution Control Boards mandating particulate matter (PM), sulphur oxide (SOx), and nitrogen oxide (NOx) measurements for open cast , the enforcement still remains a challenge. There is a rising demand for a public-facing, real-time, open-source information on localised emissions/pollution to facilitate an informed discourse on climate mitigation strategies.

Conclusion: Balancing continuity with change

India’s coal sector is not just an energy resource – it is a socioeconomic ecosystem. With a coal dependency of around 32% in India’s primary energy supply and 72% for power generation, policymakers must carefully balance energy security with decarbonisation goals using a phased, equitable, and efficiency-driven transition approach. This requires market development, regulatory innovation, and people-centric transition strategies. As coal’s role evolves, strategic clarity and policy coherence will be vital to avoid both energy shocks and stranded investments, while advancing India’s sustainable development goals.

Note

1.  Maharatna is the highest recognition for a Central Public Sector Enterprise company in India, which is above the Navratna and Miniratna categories.