The German government approved a coal exit law Wednesday, setting closure dates for 18 GW of lignite and measures to close 21 GW of hard coal capacity by 2038.

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In a first wave to 2022, 3 GW of lignite and around 6 GW of coal capacity are to be shuttered, with lignite closures focused in RWE's Rhenish mining area.

Hard coal plant operators meanwhile will compete for closure compensation in two auctions, one this year and one in 2021.

In a second wave to 2030, hard coal plants take the brunt of closures, with at least 7 GW set to close via four more auctions to 2023.

After 2027 no more hard coal closures will be compensated, while coal-to-gas switching support for combined heat and power operators is be extended to 2030.

Then in 2029 a review will define how long Germany's remaining 17 GW of more modern coal and lignite capacity can run into the 2030s.

While the final exit is currently foreseen as 2038, the review could bring this forward to 2035.

The coal exit law also includes details on how EU carbon allowances linked to closures would be cancelled.

Environment minister Svenja Schulze said a quarter of German CO2 emissions would be cut by the policy.

Energy and economy minister Peter Altmaier hailed the law as an "economically reasonable and socially balanced" way to end coal-fired power generation in Germany.

"At the same time, we create opportunities for a secure and affordable electricity supply on the basis of highly-efficient gas plants to allow for the transition to a climate-neutral energy supply," he said.

Finance minister Olaf Schulz said grid expansion and renewables roll-out would need to make progress.

Coal and lignite plants met 28% of German electricity demand in 2019, already down from over 40% in 2016, with CO2 emissions seen falling by 18% last year alone.