The pyrolysis mechanism of carboxylic and hydroxyl groups which are present in the coal has been investigated with the help of density functional theory calculations. The role of water in the pyrolysis reaction mechanisms has also been investigated by the calculation of activation energy barriers. The activation energy barriers for the water mediated reactions are less when compared to thermal pyrolysis process. The results show the significant decrease in the energy barriers for decarboxylation reactions than the hydroxyl groups in the presence of water. Therefore, water can significantly decrease the oxygen content in the non-coking coals with high content of carboxylic groups.