Testing supply-side climate policies for the global steam coal market—can they curb coal consumption?

The achieved international consensus on the 1.5–2 °C target entails that most of current fossil fuel reserves must remain unburned. A major contribution has to come from coal as both the most abundant and the most emission-intensive fuel. Currently, a majority of climate policies aiming at reducing coal consumption are directed towards the demand side. In the absence of a global carbon-pricing regime, these policies are prone to carbon leakage and other adverse effects. Supply-side climate policies present an alternative and increasingly discussed approach to reduce the consumption of fossil fuels. In this article, I employ a numerical model of the international steam coal market to examine two supply-side policies that are currently discussed in academic literature and by policy-makers, alike: (1) a production subsidy reform introduced in major coal-producing countries and (2) a globally implemented moratorium on new coal mines. The model simulates global patterns of coal supply, demand, and international trade, with endogenous investment in coal production and transportation capacities. I find that mere production subsidy removal, while associated with a small positive total welfare effect, leads to a minor reduction of global emissions. By contrast, a mine moratorium induces a much more pronounced reduction in global coal consumption by effectively limiting coal availability and strongly increasing prices. Depending on the specification of reserves, the moratorium can induce a coal consumption path consistent with the 1.5–2 °C target.