The federal government needs to rethink its defence of coal after Australia's biggest producer said it would cap output of the valuable commodity to help reduce global greenhouse gas emissions, an environmental group says.

Switzerland-based Glencore, which is also one of the world’s biggest miners, made the surprise decision after being lobbied by a powerful anti-coal group that includes Australian retail superannuation funds.

“We believe this transition is a key part of the global response to the increasing risks posed by climate change,” it said in a statement.

Burning coal for heat and electricity is a major source of carbon dioxide emissions, which contributes to man-made global warming, according to climate scientists.

Glencore’s decision has been touted as a sign thermal coal production has peaked, and the lobby group plans to use its success as a model to convince other producers to do the same.

The Australian coalition government backs coal-fired power, as was amply demonstrated by now Prime Minister Scott Morrison who as treasurer once brandished a lump of coal in parliament telling Labor MPs “this is coal. Don’t be afraid”.

“The announcement by Australia’s biggest thermal coal producer … is leaving the federal government increasingly isolated on the future of coal,” Greenpeace Australia Pacific Campaigner Jonathan Moylan said on Thursday.

“Resources Minister Matt Canavan needs to explain how the government is planning for a future beyond coal.”

Glencore will limit its annual coal production capacity “broadly to current levels” and prioritise investment in commodities supporting low emissions technology.

This means its global coal output this year will be 145 million metric tonnes, in line with the previous year.

Glencore took the decision on coal after “engagement” with the investor-led group Climate Action 100+, which was formed to lobby companies to take action against climate change.

“As one of the world’s largest diversified mining companies, we have a key role in enabling the transition to a low-carbon economy,” Glencore said.

Glencore noted “the increasing risks posed by climate change” and explicitly referenced the 2015 Paris climate accord, which set a target of keeping global warming well below 2C by the end of the century compared with pre-industrial levels.

But it also pointed to a United Nations goal of making sure millions of people in the developing world get access to affordable fuel, which includes coal.

Climate Action 100+ welcomed Glencore’s decision not to grow its coal production capacity.

“Glencore’s announcement is a significant step for the mining sector with potentially wide-reaching implications,” said Emma Herd, a member of the group’s steering committee and the CEO of the Australia and New Zealand Investor Group on Climate Change.

Climate Action 100+, which has 300 investor members with $US32 trillion of assets under management, plans to use Glencore as “an example of how low carbon transition strategies can be achieved” in the mining sector.