The head of the world’s largest coal port says it must transition away from the fossil fuel and diversify Newcastle’s economy before it’s too late, but controversial NSW government policy is stopping it.

As the government worked to improve its climate policy following a summer of drought and bushfires, Port of Newcastle chief executive Craig Carmody said $2 billion of private investment was waiting for the green light to develop a container terminal and move the Hunter away from coal.

Port of Newcastle chief executive Craig Carmody says the company must transition away from coal before it's too late. Credit:Ian Kirkwood

However, a once-secret facet of the Baird government’s 2013-14 port privatisation deal – which would force Newcastle to compensate its competitors if it transported more than 30,000 containers a year – could keep the local economy tethered to coal for decades.

Mr Carmody said the port had about 15 years to transition away from the resource, which makes up more than 95 per cent of its exports. He added that a changing climate and struggling regional sector compounded the situation.