HANOI, Vietnam (AP) -- Indonesia's coal industry is facing mounting pressure and should diversify as China and India, its biggest customers, cut back on imports of the heavily polluting fossil fuel, according to a report from a Jakarta-based energy thinktank, Energy Shift.

The report released Tuesday says that the industry, which accounts for about 3.6% of Indonesia's economic activity and employs tens of thousands of people, needs to shift toward cleaner energy now or risk being forced into a costly transition later.

Indonesia is the world's biggest exporter of coal, which is central to its economy, generating tax revenues and jobs. So the expected long-term decline in demand presents a unique challenge for the country of some 280 million. Indonesia's coal production is still rising, hitting a record 836 million tons in 2024, nearly 8% more than the year before.

The industry also relies heavily on just a few buyers, with China and India buying nearly two-thirds of Indonesia's coal exports in 2023.

China still relies on coal for more than half its electricity generation. It accounted for 41% of global coal imports in 2024, or nearly 543 million tons. But more than 75% of the growth in demand last year was met by clean energy.

India's coal imports fell 8.4% to 183.42 million metric tons from April to December 2024, down from 200.19 million metric tons in the same period a year earlier, government data shows. The drop is part of India's push to reduce import dependence by ramping up domestic coal production. Imports for industries like cement, steel and aluminum that buy coal at market rates declined 12% while imports for thermal power plants fell even more sharply, down 29.8%.

Indonesia's coal exports fell to a three-year low in January-April of this year, a shift that may signal a longer term decline, experts say.

"These are signs that Indonesian coal miners have to start taking seriously as well," said Hazel Ilango of the Energy Shift Institute.

There are other risks too. Most Indonesian coal companies are tightly controlled by insiders -- owners, executives, and board members -- who hold about 75% of company shares on average, according to the report. Regulations such as domestic supply rules and high royalties also limit profits, while access to global financing remains restricted.

The private sector and investors are generally uninterested in long-term transition plans and are more focused on immediate profits, while government policies remain inconsistent, said Putra Adhiguna of the Energy Shift Institute.

Experts say that the country's coal policy is riddled with contradictions. It has pledged to cut emissions and transition to clean energy, but it continues to expand coal production and approve new plants. Domestic subsidies keep coal cheap, but abrupt export bans have disrupted global markets. Meanwhile, the state utility plans to retire coal plants early under a $20 billion transition deal -- even as new ones tied to the industry are still being built.

As major coal importers like China and India cut imports to boost their energy security, Indonesia's coal sector needs to plan ahead, said Jordan Lee, an energy transition expert at the Tony Blair Institute for Global Change in Jakarta.

"The reason I say that is basically if you look at what happened with some big oil companies that have tried something similar, we have seen the market not respond too positively," he said.

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