Working Paper: CEPR ID: DP1089
Authors: Kym Anderson
Abstract: Both the mining and the burning of coal is pollutive, so one might expect to observe taxes on coal production and consumption. Yet several countries in Western Europe subsidize coal production, and most East European countries subsidize coal consumption. The first part of this paper shows that those subsidies, which are emulated by other rich and poor countries respectively, have become enormous. Neoclassical political economy is used to examine why governments adopt such inappropriate policies when they are so wasteful of resources and damaging to the environment. Several new and offsetting political forces have been at work in Western Europe in recent years though, causing some countries to dismantle their coal producer subsidies. The paper concludes that these pressures for reform will continue to operate in the few remaining protectionist countries such that, if coupled with more commercial diplomatic pressure from coal-exporting countries, they could be sufficient to see the end of such protection by early next century.
Keywords: political economy; coal subsidies; European Union; Eastern Europe; coal trade; liberalization
JEL Codes: F13; H21; 038; 048
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Organized political lobbying by coal mining interests (L71) | Presence of substantial coal producer subsidies in Western Europe (L71) |
| Increased lobbying efforts (D72) | Sustained subsidies (H23) |
| Competitive pressures faced by coal users (L94) | Policy decisions regarding coal subsidies (L78) |
| International trade dynamics (F14) | Domestic policy changes regarding coal subsidies (L78) |