Despite increasingly ambitious climate commitments, projected coal production worldwide remains far above the levels consistent with international climate goals. This mismatch, known as the coal gap, is derived from the broader production gap framework and highlights the challenge of aligning coal production with pathways that limit global warming to well below 2°C and pursue efforts to keep it within 1.5°C. The 2025 Production Gap Report underscores the persistence of this misalignment, noting that governments collectively still plan to produce more than twice the amount of fossil fuels in 2030 than would be consistent with a 1.5°C pathway. This widening gap between climate commitments and production plans reinforces the importance of evaluating national energy systems in terms of fossil fuel dependence, stranded asset risks, and long-term transition costs.
Source: The Production Gap Report 2025, Stockholm Environment Institute, Climate Analytics, IISD
A decade after the Paris Agreement, countries are still expanding fossil fuel production, putting climate goals at risk. Governments now plan even more coal production through 2035 and more oil and gas production through 2050 than they did in 2023. These plans conflict with Paris commitments and projections that fossil fuel demand will peak before 2030. By 2030, planned production would exceed levels consistent with limiting warming to 1.5°C by 500% for coal, 31% for oil, and 92% for gas.
Across Europe, the transition to low-carbon electricity systems has significantly altered power market dynamics. Coal-fired power plants, which historically provided baseload generation and contributed to system adequacy, particularly in parts of Eastern Europe, are increasingly operating fewer hours as wind and solar generation expands. This reflects a combination of factors, including changes in the merit-order dispatch, rising carbon costs under the EU Emissions Trading System (EU ETS), and improving competitiveness of low-marginal-cost generation. Empirical evidence from the past five years shows that the increase in wind and solar generation (approximately 60%) has outpaced the decline in coal generation (around 37%), suggesting a broader structural reconfiguration of the generation mix rather than a simple one-to-one substitution (look at Figure 2).
Source: Eurelectric, link
Within this broader European transition, Bulgaria represents a particularly distinctive case due to its long-standing reliance on lignite coal. The electricity sector has historically been dominated by domestic lignite resources extracted from the Maritsa East basin, which hosts some of the largest coal-fired power plants in Southeast Europe. For decades, lignite generation played a central role in ensuring energy security, supporting regional employment, and contributing to Bulgaria’s position as a net exporter of electricity in the Balkan region.
Bulgaria has discussed a gradual reduction in coal use, with 2038 often referenced as a potential timeframe for the phase-out of coal-fired generation, although no adopted national strategy explicitly establishes a coal phase-out by that date. Discussions also continue regarding the potential role of coal-fired plants as a strategic reserve capacity. The energy sector remains the dominant source of CO₂ emissions in the country, followed by transport and residential heating. Domestically mined coal is used almost entirely for electricity generation and district heating, with negligible export volumes.
In recent years, coal-fired generation has declined steadily, reaching historically low levels. This decline reflects a combination of rising carbon costs under the EU ETS, market partial-liberalisation effects, and increasing penetration of renewable generation. As a result, coal plants are increasingly concentrated in peak and evening hours, while their utilisation has declined during daytime periods due to competition from lower-marginal-cost generation and increased cross-border electricity trade. From an operational perspective, coal-fired plants are relatively inflexible compared to gas and renewable technologies, which limits their ability to respond to rapid changes in system demand and contributes to reduced utilisation under market-based dispatch conditions.
Source: Source: Eurelectric, link
Environmental mechanism: coal–emissions linkage
From an environmental perspective, the relationship between coal-based electricity generation and energy-sector emissions in Bulgaria is direct and physically determined. Empirical results based on annual data for 2015–2024 indicate a very strong relationship between coal generation and CO₂ emissions (correlation ≈ 0.98), reflecting the carbon-intensive nature of lignite-based electricity production.
Over the same period, coal-based generation declined by approximately 47%, while energy-sector CO₂ emissions decreased by around 58%. This co-movement suggests that reductions in coal utilisation have been the primary driver of emissions reductions in the electricity sector, with limited evidence of substitution effects that would significantly weaken this relationship. From this perspective, maintaining coal-based capacity is associated with a clearly identifiable environmental cost in the form of higher emissions relative to a lower-coal generation pathway.
Source: Data from ENTSO-E & EDGAR
Note: Wholesale energy prices are expressed in EUR and deflated using the HICP deflator. As of October 2020, the non-household electricity market segment has been liberalised. Following market opening, wholesale prices increasingly reflected merit-order dispatch (the merit ored is expalined here) and exposure to European gas and carbon price dynamics.
Economic mechanism: indirect and system-dependent effects
The economic implications of maintaining coal-fired generation are less directly observable and depend on electricity market structure and system conditions. In Bulgaria, this complexity is shaped by two overlapping developments: the liberalisation of the non-household electricity market in October 2020 and the European energy crisis of 2021–2022. Together, these changes shifted price formation from a partially regulated framework toward greater exposure to wholesale market mechanisms, including merit-order dispatch and fluctuations in natural gas and carbon prices. As a result, wholesale electricity prices do not exhibit a stable linear relationship with coal generation over the full period.
However, hourly data for a recent observation day (5 June 2026) indicate stronger co-movement between wholesale prices, emissions, coal generation, and system load, consistent with merit-order dispatch under varying demand conditions.
Source: Own calculations based on Eurelectric data
Overall, the results indicate that the environmental costs of coal dependence are direct and measurable, as reflected in the strong association between coal generation and emissions. In contrast, the economic implications are more indirect and mediated through market structure, price formation mechanisms, and system-wide interactions. Rather than exhibiting a stable one-to-one relationship with wholesale electricity prices, coal generation influences system outcomes through its role within a liberalised and increasingly integrated European electricity market.
Recent developments in Bulgaria’s coal sector illustrate this transition. While the country has committed to maintaining coal-fired capacity until 2038 in view of energy security and regional socio-economic considerations, market conditions are already reshaping the role of coal generation. The expiration of long-term support mechanisms, rising carbon costs, growing renewable deployment, and the emergence of large-scale battery storage are prompting generators to adapt their business models. Recent developments in the Maritsa East complex illustrate how market conditions are already reshaping the role of coal-fired generation in Bulgaria. AES Galabovo has begun a controlled shutdown following the expiry of its long-term power purchase agreement, ContourGlobal Maritsa East 3 has commissioned a 202 MW/500 MWh battery storage system at the plant site, and the state-owned Maritsa East 2 is exploring biomass co-firing to reduce its carbon footprint.
Looking ahead, coal-fired power plants may continue to play a role in ensuring system adequacy, particularly during periods of high demand, limited renewable output, or system stress. However, their future function is likely to differ from their historical role as a dominant source of baseload electricity. The central challenge for Bulgaria will be to balance security of supply, economic competitiveness, and decarbonisation objectives while managing the transition of regions and industries that have historically depended on coal. In this context, the evolution of coal generation will depend not only on political commitments, but also on the ability of alternative technologies and market arrangements to provide reliable and cost-effective system services.
Authors: PhD Candidate Lyubimka Georgieva & Dr. Mariya Trifonova