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Testing Supply-Side Climate Policies for the Global Steam Coal Market - Can They Curb Coal Consumption?

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  • Roman Mendelevitch

Abstract

The achieved international consensus on the 1.5‐2°C target entails that most of current fossil fuel reserves must remain unburned. Currently, a majority of climate policies aiming at this goal are directed towards the demand side. In the absence of a global carbon regime these polices are prone to carbon leakage and other adverse effects. Supply‐side climate policies present an alternative and more direct approach to reduce the consumption of fossil fuels by addressing their production. Here, coal as both, the most abundant and the most emission-intensive fuel, plays a pivotal role. In this paper, I employ a numerical model of the international steam coal market (COALMOD‐World) to examine two alternative supply‐side policies: 1) a production subsidy reform introduced in major coal producing countries, in line with the G20 initiative to reduce global fossil fuel subsidies; 2) a globally implemented moratorium on new coal mines. The model is designed to replicate global patterns of coal supply, demand and international trade. It features endogenous investments in production and transportation capacities in a multi‐period framework and allows for substitution between imports and domestic production of steam coal. Hence, short‐run adjustments (e.g. import substitution effects) and long‐run reactions (e.g. capacity expansions) of exporting and importing countries are endogenously determined. Results show that a subsidy removal, while associated with a small positive total welfare effect, only leads to an insignificant 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 achieve a coal consumption path consistent with the 1.5‐2°C target.

Suggested Citation

  • Roman Mendelevitch, 2016. "Testing Supply-Side Climate Policies for the Global Steam Coal Market - Can They Curb Coal Consumption?," Discussion Papers of DIW Berlin 1604, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1604
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    Cited by:

    1. Roman Mendelevitch & Christian Hauenstein & Franziska Holz, 2019. "The Death Spiral of Coal in the USA: Will New U.S. Energy Policy Change the Tide?," Discussion Papers of DIW Berlin 1790, DIW Berlin, German Institute for Economic Research.
    2. Song, Yunting & Wang, Nuo, 2019. "Exploring temporal and spatial evolution of global coal supply-demand and flow structure," Energy, Elsevier, vol. 168(C), pages 1073-1080.
    3. Nicholas Ngepah & Charles Raoul Tchuinkam Djemo & Charles Shaaba Saba, 2022. "Forecasting the Economic Growth Impacts of Climate Change in South Africa in the 2030 and 2050 Horizons," Sustainability, MDPI, vol. 14(14), pages 1-18, July.
    4. Philippe Le Billon & Païvi Lujala & Devyani Singh & Vance Culbert & Berit Kristoffersen, 2021. "Fossil fuels, climate change, and the COVID-19 crisis: pathways for a just and green post-pandemic recovery," Climate Policy, Taylor & Francis Journals, vol. 21(10), pages 1347-1356, November.
    5. Schönfisch, Max, 2022. "Charting the Development of a Global Market for Low-Carbon Hydrogen," EWI Working Papers 2022-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    6. Philippe Le Billon & Berit Kristoffersen, 2020. "Just cuts for fossil fuels? Supply-side carbon constraints and energy transition," Environment and Planning A, , vol. 52(6), pages 1072-1092, September.

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    More about this item

    Keywords

    Supply‐side climate policy; coal markets; reserves; subsidy removal; International trade;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources

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