Working Paper: CEPR ID: DP1698
Authors: Kym Anderson; Warwick J. McKibbin
Abstract: International negotiations for an agreement to reduce the emission of greenhouse gases are unlikely to produce concrete and comprehensive policies for effective emission reductions in the near term, not least because the policy measures being considered are economically very costly to major industries in rich countries and are unlikely to prevent ?leakage? through a re-location of carbon-intensive activities to poorer countries. An alternative or supplementary approach that is more likely to achieve carbon and methane emission reductions, and at the same time generate national and global economic benefits rather than costs, involves lowering coal subsidies and trade barriers. Past coal policies which encouraged excessive production of coal in a number of industrial countries and excessive coal consumption in numerous developing and transition economies are currently under review and in some cases are being reformed. This paper documents those distortions and outlines the circumstances under which their reform could not only improve the economy but also lower greenhouse gas emissions globally. It also provides modelling results which quantify the orders of magnitudes that could be involved in reducing those distortions. The effects on economic activity as well as global carbon emissions are examined using the G-Cubed multi-country general equilibrium model of the world economy. Both the gains in economic efficiency and the reductions in carbon dioxide emissions that could result from such reforms are found to be substantial ? a ?no regrets? outcome or win-win Pareto improvement for the economy and the environment that contrasts markedly with many of the costly proposals currently being advocated to reduce greenhouse gases.
Keywords: coal subsidies; trade; environment; carbon emissions; global warming; greenhouse gases
JEL Codes: 058; F13; F17; H2; 04
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reducing coal subsidies and trade barriers (F13) | Substantial reductions in greenhouse gas emissions (H23) |
| Removal of coal production subsidies and trade barriers (F13) | Lower OECD emissions of carbon dioxide by 13% (F64) |
| Removal of coal production subsidies and trade barriers (F13) | Lower global CO2 emissions by 5% (Q54) |
| Non-OECD countries raising domestic coal prices to international levels (P22) | Lower CO2 emissions by an additional 4% (Q54) |
| Removal of coal subsidies in OECD countries (H23) | Rise in international coal prices (Q37) |
| Rise in international coal prices (Q37) | Lower coal consumption and emissions globally (Q35) |
| Coal subsidies removal (H23) | Cumulative reduction in global emissions by 8% (F62) |