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Hard Coal Subsidies: A Never-Ending Story?

  • Manuel Frondel

    ()

  • Rainer Kambeck

    ()

  • Christoph M. Schmidt

    ()

In Germany, hard coal has been subsidized for almost half a century. Despite the declining significance of hard coal production for the domestic labor market, the magnitude of subsidies increased until the middle of the last decade. In 1996, they peaked at € 6.7 bill.While German hard coal subsidies have been shrinking to € 2.7 bill. in 2005, it is very likely that they will be extended well into the next decade and even beyond. This article discusses the feeble arguments raised by the proponents of hard coal subsidization in Germany and other EU countries. Most importantly, in addition to the drain imposed on public budgets, these subsidies imply a substantial opportunity cost, leading funds away from alternative, more beneficial public investments. From a social welfare perspective, we therefore recommend the rapid abolition of these subsidies not only in Germany, where in nominal terms the accumulated amount of subsidies has now by far exceeded € 130 bill., but all across Europe.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung in its series RWI Discussion Papers with number 0053.

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Length: 21 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:rwi:dpaper:0053
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  1. Manuel Frondel & Jörg Peters, 2005. "Biodiesel: A New Oildorado?," RWI Discussion Papers 0036, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
  2. Frondel, Manuel & Schmidt, Christoph M., 2005. "Evaluating environmental programs: The perspective of modern evaluation research," Ecological Economics, Elsevier, vol. 55(4), pages 515-526, December.
  3. Ullrich Heilemann & Bernhard Hillebrand, 1992. "The German Coal Market After 1992," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
  4. Jacobi, Lena & Kluve, Jochen, 2006. "Before and After the Hartz Reforms: The Performance of Active Labour Market Policy in Germany," IZA Discussion Papers 2100, Institute for the Study of Labor (IZA).
  5. Radetzki, Marian, 1995. "Elimination of West European coal subsidies : Implications for coal production and coal imports," Energy Policy, Elsevier, vol. 23(6), pages 509-518, June.
  6. Anderson, Kym, 1995. "The Political Economy of Coal Subsidies in Europe," CEPR Discussion Papers 1089, C.E.P.R. Discussion Papers.
  7. Welsch, Heinz, 1998. "Coal subsidization and nuclear phase-out in a general equilibrium model for Germany," Energy Economics, Elsevier, vol. 20(2), pages 203-222, April.
  8. Steenblik, Ronald P & Coroyannakis, Panos, 1995. "Reform of coal policies in Western and Central Europe : Implications for the environment," Energy Policy, Elsevier, vol. 23(6), pages 537-553, June.
  9. Storchmann, Karl, 2005. "The rise and fall of German hard coal subsidies," Energy Policy, Elsevier, vol. 33(11), pages 1469-1492, July.
  10. Kluve, Jochen, 2006. "The Effectiveness of European Active Labor Market Policy," IZA Discussion Papers 2018, Institute for the Study of Labor (IZA).
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