The Effects of Restricting Coal Consumption

Reducing coal consumption is a goal of many countries’ energy policies. However, policies that restrict domestic coal consumption also incentivize the export of coal to non-abating foreign countries and encourage coal consuming industries to move their production to these countries. This paper uses a modified version of the GTAP-E model to quantify these effects for a US restriction on coal consumption. I find that the coal restriction’s impact on foreign emissions is negligible, but domestic fuel-switching offsets from 15 to 28 percent of the drop in domestic coal emissions. But trade is more important for welfare analysis, as the economic costs of the restriction are concentrated in the US, while the rest of the world’s welfare increases by 15 to 19 percent of the US losses.