Both the mining and the burning of coal is pollutive, so one might expect to observe taxes on coal production and consumption. Yet several countries in Western Europe subsidize coal production, and most East European countries subsidize coal consumption. The first part of this paper shows that those subsidies, which are emulated by other rich and poor countries respectively, have become enormous. Neoclassical political economy is used to examine why governments adopt such inappropriate policies when they are so wasteful of resources and damaging to the environment. Several new and offsetting political forces have been at work in Western Europe in recent years though, causing some countries to dismantle their coal producer subsidies. The paper concludes that these pressures for reform will continue to operate in the few remaining protectionist countries such that, if coupled with more commercial diplomatic pressure from coal-exporting countries, they could be sufficient to see the end of such protection by early next century.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1089.
Find related papers by JEL classification: F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy) Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
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