The four stages in coal formation are peat, lignite, bituminous and anthracite. Each of these stages must be completed for coal to form.
Stage one in coal production is peat. Peat is a fibrous substance that is oxidized by water and carbon dioxide. When a plant dies, and stays under water, it builds up an accumulation of peat. Peat, when burned, produces a lot of smoke and a large flame and therefore is rarely used as a heat source.
Stage two of the coal formation process is lignite. Lignite forms when peat is put under considerable vertical pressure. It contains small amounts of plant matter and is very fragile so it must never be handled before burning.
Bituminous coal is the third stage of coal production. The lignite continues receiving heavy vertical pressure until it turns a dark brown and becomes soft coal. Bituminous coal is used as an energy source in many parts of the world.
The final stage of coal production is the anthracite stage. During this stage, soft coal becomes hard coal. It takes on a certain luster and is formed due to intense pressure and high temperatures. Anthracite produces little smoke and is the coal most people are familiar with.