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

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 emissionintensive 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.

Prospects for steam coal exporters in the era of climate policies: a case study of Colombia

“…Haftendorn, 2012;Haftendorn & Holz, 2010;Trüby & Paulus, 2012), and the other analysing the effects of various climate policies on the international steam coal markets (c.f. Bertram et al, 2015;Blondeel & Van de Graaf, 2016;Culver & Hong, 2016;Haftendorn, Kemfert, & Holz, 2012;Johnson et al, 2015;Mendelevitch, 2018;Richter, Mendelevitch, & Jotzo, 2018;von Hirschhausen et al, 2011). This article draws from these quantitative analyses to evaluate prospects for the international steam coal market in the era of climate policies in line with the Paris Agreement.…”

Coal and climate change

“…Since Harstad's proposal, a small but growing body of literature has sought to develop the case for ‘supply side’ climate policies, based on the emerging consensus that any hope of limiting global warming to “well below” 2°C—let alone more recent calls for 1.5°C (IPCC, )—will require leaving significant known fossil fuel reserves unburned (Collier & Venables, ; Davis et al, ; Johnson et al, ; McGlade & Ekins, ; Spencer et al, ). Perhaps because this requires such a rapid and significant coal transition (Johnson et al, ; McGlade & Ekins, ), a significant proportion of this literature focuses explicitly on coal, including the majority of a recent special issue on “Fossil fuel supply and climate policy” in Climatic Change , where six of the eight papers either focused exclusively on coal or drew heavily on examples related to coal, and the case was made for a range of supply side options, from export and production taxes to subsidy removal and moratoria on new coal developments (Blondeel & Van de Graaf, ; Green & Denniss, ; Lazarus & van Asselt, ; Mendelevitch, ; Richter et al, ; Spencer et al, ).…”

Existing fossil fuel extraction would warm the world beyond 1.5 °C

“…For Russia and Germany (8% of global production), we derive top-down estimates from government and industry sources, respectively (Ministry of Natural Resources and the Environment 2019, DEBRIV 2019). For countries accounting for the remaining 10% of world coal production, we estimate developed reserves as equal to current annual production multiplied by the median ratio of developed reserves to production across our nine studied countries (Mendelevitch 2018).…”