Mercedes Mullins
Coal is a fossil fuel that has been the world's primary energy source for decades. However, with the emergence of renewable energy sources, the question of whether coal is the cheapest fossil fuel has arisen. According to the International Renewable Energy Agency, renewable energy sources like solar and wind power are now cheaper than fossil fuel options. In 2020, renewable energy was the cheapest source of energy, and the cost of these technologies is continuing to fall. Despite this, fossil fuel power plants can scale up and down to meet demand, making them more reliable in terms of supply and demand. Nevertheless, with the world aiming to reach net-zero emissions by 2050, the decline in coal consumption is projected to continue, with renewable energy sources becoming increasingly affordable and accessible.
| Characteristics | Values |
|---|---|
| Cheapest fossil fuel | Gas combined cycle |
| Cheapest energy source in 2020 | Renewables |
| Cheapest renewable energy sources | Solar, onshore and offshore wind |
| Cheapest fossil fuel projected to decline over the next decade | Coal |
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What You'll Learn
Coal is the heaviest polluting fossil fuel
While coal is one of the cheapest fossil fuels, it is also the heaviest polluting fossil fuel. Coal is a significant contributor to global emissions, and the push to transition to renewable energy sources is driven by the need to reduce these emissions and combat climate change.
The use of coal has come under scrutiny from environmental groups, who argue that it is a major polluter and that the externalized costs of coal's environmental impact should be factored into its price. These groups advocate for a Pigou tax on CO2 emissions, which would tax fossil fuel production in proportion to its negative environmental impact.
Renewable energy sources, such as solar and wind power, are now often cheaper than fossil fuels, including coal. In 2020, renewable energy was the cheapest source of energy globally, and this trend is expected to continue with further reductions in the cost of renewable technologies.
The affordability and environmental benefits of renewable energy sources are driving a global transition away from coal and other fossil fuels. This transition is particularly important in emerging economies, where the adoption of renewable energy projects is predicted to reduce electricity costs and carbon emissions significantly.
Overall, while coal may be one of the cheapest fossil fuels in terms of upfront cost, it is the heaviest polluting fossil fuel, and its environmental impact is driving a global shift towards cleaner and more affordable renewable energy sources.
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Coal consumption is projected to decline by 13.5% by 2030
While coal remains the world's largest source of power generation, its share in the electricity mix is falling. In advanced economies, coal demand has halved from its peak in 2007, and it continues to decline. In the United States, coal consumption fell by 4% in 2024, and in the European Union, coal demand decreased by over 10% in the same year. The UK joined the list of countries without coal power capacity in September 2024.
However, in 2024, global coal demand grew by 1.2% in energy terms, rising by around 67 million tonnes of coal equivalent (Mtce). This growth was driven by emerging economies such as China, India, and Indonesia, where coal-intensive sectors such as nickel mining and chemical production are still heavily reliant on coal. China's coal demand grew by 1.2% in 2024, reaching a new all-time high, and the country now consumes nearly 40% more coal than the rest of the world combined. India, the world's second-largest coal consumer, also saw a demand growth of 5.5% in 2024.
Despite this, there are signs that coal consumption is projected to decline in the coming years. Global coal trade volumes are expected to contract in 2025 for the first time since the 2020 Covid-related downturn, and this decline is anticipated to continue into 2026. Coal prices are projected to decline by 27% in 2025 and by a further 5% in 2026 due to a slowdown in global economic growth and weaker coal demand. Coal consumption in Europe and North America is also expected to continue its downward trend, albeit at a slower rate.
While coal remains a significant source of energy globally, the rise of renewable energy sources and the increasing economic and geopolitical uncertainties are expected to contribute to a projected decline in coal consumption in the coming years. The transition to renewable energy sources is gaining momentum, with over 90% of global renewable power projects now cheaper than fossil fuels. Solar power costs 41% less than the cheapest fossil fuel option, and onshore wind power is even more competitive. As a result, coal consumption is projected to decline, and the world is moving towards a more sustainable energy future.
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Coal power is becoming increasingly uneconomic
The International Renewable Energy Agency (IRENA) has reported that over 90% of global renewable power projects are now cheaper than fossil fuels. Solar power costs 41% less than the cheapest fossil fuel option, and onshore wind is less than half the price. Similarly, Forbes predicts that global coal consumption will decline by 13.5% by 2030, based on the expectation of major growth in renewables and electric vehicles.
The benefits of switching to renewables are twofold: not only do they reduce costs, but they also reduce carbon emissions. IRENA's report shows that new renewables beat existing coal plants on operating costs. For example, in the United States, 61% of the total coal capacity costs more than new renewable capacity. Retiring and replacing these plants with renewables would save USD 5.6 billion per year and reduce CO2 emissions by 332 million tonnes. Globally, retiring 800 GW of existing coal power would reduce power generation costs by up to USD 32.3 billion annually and avoid 3 gigatonnes of CO2 per year.
Furthermore, an Oxford University study from 2022 found that transitioning from fossil fuels to renewable energy could save the world up to $12 trillion by 2050. Dr Rupert Way, the report's lead author, emphasised that "the faster we go, the more we'll save".
However, it is worth noting that some argue that renewable energy sources cannot always produce power when it is needed the most, and fossil fuel power plants can scale up and down to meet demand more effectively. Nevertheless, the economic and environmental advantages of renewable energy sources are clear, and coal power is becoming increasingly uncompetitive.
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Fossil fuels don't receive explicit subsidies
While coal is considered the cheapest fossil fuel for generation, it is still double the cost of utility-scale solar. Over 90% of global renewable power projects are now cheaper than fossil fuels. Solar power costs 41% less than the cheapest fossil fuel option, and onshore wind is under half the price. However, renewable energy sources are not always reliable, as they are dependent on nature. For example, wind power is only useful if there is enough wind, and solar power is dependent on the sun. Fossil fuel power plants, on the other hand, can scale up and down to meet demand.
Fossil fuels do receive subsidies, but these are not always explicit. Explicit subsidies are defined as "money that is paid by a government or an organization to reduce the costs of services or of producing goods so that their prices can be kept low." In other words, payments are made to make fossil fuels cheaper, either for the producers or the consumers. In 2022, global explicit subsidies for fossil fuels amounted to around $1.5 trillion, which is about 1.5% of the global gross domestic product (GDP). However, this number varies depending on the definition of subsidies and can range from hundreds of billions of US dollars to as much as $7 trillion. This $7 trillion figure includes both explicit and implicit subsidies, with the latter accounting for the societal costs of burning fossil fuels, such as local air pollution, climate change, road accidents, and congestion.
The distribution of explicit subsidies varies by region, with broad distributions in the Middle East and North Africa (MENA), Europe, the Commonwealth of Independent States (CIS), and East Asia and the Pacific (EAP). While explicit subsidies exist, they are not the primary form of subsidy for fossil fuels. Implicit subsidies, which do not have a direct budgetary impact, are more common. For example, not taxing the pollution from fossil fuel energy production is considered an implicit subsidy, as it does not reflect the true cost of burning fossil fuels.
The total value of subsidies for fossil fuels declined in 2023 as some government provisions expired, but they remain elevated compared to historical averages. While subsidies aim to make energy more affordable, they can have negative consequences, such as higher taxes, inefficient allocation of resources, and the promotion of pollution. Removing fossil fuel subsidies and investing the revenue in social spending, reducing inefficient taxes, and productive investments can promote sustainable and equitable outcomes.
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Renewable energy is more affordable than fossil fuels
Renewable energy sources such as wind, solar, and hydropower are cheaper than fossil fuels. Renewable energy is more affordable because it has low operational costs, as it does not require fuel, which fossil fuels do. Fossil fuels like coal, oil, and natural gas can be expensive to extract, transport, and store, and their prices can fluctuate, making it difficult to predict operating costs. Renewable energy sources, on the other hand, have no fuel costs, making them more predictable and less volatile.
The International Renewable Energy Agency (IRENA) reported that over 90% of new renewable energy projects are cheaper than fossil fuels. Solar photovoltaic (PV) is 41% cheaper than the lowest-cost fossil fuel alternatives, such as gas, while onshore wind projects are 53% cheaper and under half the price of fossil fuels.
The cost of battery energy storage systems, which are necessary to store renewable energy, has declined by 93% since 2010, making renewable energy even more affordable. Additionally, advancements in technology have made renewable energy sources more efficient, such as solar panels becoming more efficient at converting sunlight into electricity.
The increased demand for renewable energy has also driven down costs due to greater competition among providers. In some cases, renewable energy is now cheaper than fossil fuels even without government incentives. Fossil fuels also have significant environmental costs, such as air and water pollution and greenhouse gas emissions, which are not reflected in their prices and can have economic and health impacts on society.
However, it is important to note that renewable energy sources cannot always produce power when it is needed, as they are dependent on natural factors like wind and sunlight. Fossil fuel power plants can scale up and down to meet demand, making them more reliable in terms of supply and demand. Additionally, building transmission lines to carry electricity to customers can be more expensive for renewable energy sources, as fossil fuel plants are often located closer to customers.
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Frequently asked questions
No, renewable energy sources such as solar and wind power are now cheaper than fossil fuels.
According to an International Renewable Energy Agency report, solar power costs 41% less than the cheapest fossil fuel option, and onshore wind is under half the price.
Renewable energy sources don't require fuel to run, whereas fossil fuel plants require fuel such as coal, oil and natural gas, which can be expensive.
Yes, but coal is the only fossil fuel projected to decline over the next decade.
Aside from being cheaper, renewable energy sources produce fewer carbon emissions than fossil fuels, which is better for the environment.
