The decision, announced at the COP30 climate summit, signals a risk to Australia's reliance on fossil fuel exports, according to analysts.

The Australian government is being urged to prepare for a gradual reduction in thermal coal exports and accelerate the development of green industries after a major international customer signed an agreement to shut down all its coal-fired power plants by 2040.

South Korea, which is Australia's third-largest market for power station coal, announced its membership in the 'Powering Past Coal Alliance' at the COP30 climate summit in Brazil. The alliance is comprised of about 60 countries and 120 sub-national governments, businesses, and organizations committed to phasing out the fossil fuel.

Kim Sung-hwan, South Korea's Minister for Climate, Energy, and Environment, said the move shows the country's commitment to "accelerating a just and clean energy transition."

The North Asian nation, which has the world's seventh-largest installed capacity of coal-fired power, is the world's fourth-largest importer of thermal coal after China, India, and Japan, accounting for about 8% of the global trade. Coal-fired power accounts for about 30% of the country's electricity supply.

In a statement, Kim said, "Switching from coal to clean energy is not only critical for the climate, but it will also help South Korea and all other nations raise energy security, boost corporate competitiveness, and create thousands of jobs."

The commitment requires South Korea to close 62 coal-fired power plants, with closure dates already set for 40 of them. The analytics firm Kpler estimated that Australia is set to sell about A$2.3 billion ($1.5 billion) worth of thermal coal to South Korea this year.

James Bowen, director of the consulting firm ReMap Research, said South Korea's decision would send a strong signal across the Asia-Pacific region.

"Australia's continued reliance on fossil fuel exports in the medium to long term is a risky strategy," he said.

He cited Australian Treasury modeling predicting that the value of its fossil fuel exports will decline by about 50% over the next five years, regardless of where the country sets its national emissions reduction target. Total sales of thermal coal from Australian mines were A$32 billion in the last financial year.

"South Korea's decision should push Australia to show leadership by discussing a timetable for phasing out fossil fuels while helping its regional neighbors embrace clean energy," Bowen said.

Tim Buckley, a director at Climate Energy Finance, said South Korea's announcement was "excellent" news and showed that Australia's trading partners were "responding to climate science and their treaty obligations."

"Australia needs to pivot its export focus towards the low-emissions industries of the future, particularly exporting green iron and aluminum, critical minerals, and lithium hydroxide, to help our key trading partners collectively achieve their decarbonization goals," he said.

Australia is not a member of the Powering Past Coal Alliance, but the government aims to lift the share of renewable electricity generation to 82% by 2030, up from about 42% over the past year.

Political debate in Australia in recent days has centered on the federal opposition withdrawing support for the bipartisan net-zero by 2050 target and saying it would subsidize coal power if it wins the next election in 2028.

South Korea has faced criticism for dropping a 100% renewable energy target and for being slow to act on the climate crisis. The Climate Action Tracker has noted that for the country's actions to be consistent with the goals of the Paris Agreement, it should phase out coal power by 2030 and gas power shortly thereafter.

The nation is also a significant importer of metallurgical coal, which is used in steelmaking. It has a sizeable fleet of nuclear and gas-fired power plants, each supplying about 30% of the country's electricity.

Australia is the world's second-largest exporter of thermal coal, after Indonesia, and the largest exporter of metallurgical coal. It is neck and neck with the US and Qatar as the world's biggest exporter of liquefied natural gas (another fossil fuel).