Skip to main content

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


The achieved international consensus on the 1.5–2 °C target entails that most of current fossil fuel reserves must remain unburned. A major contribution has to come from coal as both the most abundant and the most emission-intensive fuel. Currently, a majority of climate policies aiming at reducing coal consumption are directed towards the demand side. In the absence of a global carbon-pricing regime, these policies are prone to carbon leakage and other adverse effects. Supply-side climate policies present an alternative and increasingly discussed approach to reduce the consumption of fossil fuels. In this article, I employ a numerical model of the international steam coal market to examine two supply-side policies that are currently discussed in academic literature and by policy-makers, alike: (1) a production subsidy reform introduced in major coal-producing countries and (2) a globally implemented moratorium on new coal mines. The model simulates global patterns of coal supply, demand, and international trade, with endogenous investment in coal production and transportation capacities. I find that mere production subsidy removal, while associated with a small positive total welfare effect, leads to a minor 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 induce a coal consumption path consistent with the 1.5–2 °C target.

This is a preview of subscription content, access via your institution.

Fig. 1


  1. From here on referred to as 2 °C (goal).

  2. The difference in the two numbers accounts for possible future use of Carbon Capture, Transport and Storage (CCS), a technology which has thus far not lived up to high hopes (Oei and Mendelevitch 2016).

  3. With one major exception, the INDCs submitted by India are not fully incorporated. The original target for solar PV installed until 2022 is reduced to 40 GW (IEA/OECD 2015a, 498), which increases consumption of fossil fuels to cover increasing energy demand, and thus induced an overestimation of coal demand.

  4. Namely, the scenario misses current developments like the peak in coal consumption (NBSC 2015) and a moratorium on new coal power plants and mines in China (see The State Council of the People’s Republic of China (2016) and Boren (2016)), and the banning of coal from the energy mix in a number of European countries like the UK (cf. Rudd 2015).

  5. Though COP23 shows increasing momentum to phase out coal in some economies (cf. global alliance to phase out coal, Powering Past Coal (2017)), concrete policies are needed to bring a global coal phase out about (Piggot et al. 2017).

  6. As argued in Bertram et al. (2015), a policy mix can inter alia help to increase the feasibility of policy measures, as it serves to cushion distributional effects and limit efficiency losses.

  7. See WTO (1994, Article 1) for a formal definition of subsidies as well as Beaton et al. (2013) for a discussion of alternative definitions.

  8. The quality and level of detail of information available for different countries vary significantly. See Appendix 1 for a country-by-country description of the approach to calculate subsidies and employed sources.

  9. Due to the spatial disaggregation of subsidies, the model can also simulate regional substitution between different coal basins, which are affected asymmetrically.

  10. Ideally, one would differentiate between subsidies that affect per-unit marginal production costs versus those lowering investment costs. Due to a lack of data and for reasons of consistency and tractability, all costs are only attributed to the marginal cost items.

  11. For comparison, the EU ETS covered 2084 MtCO2 in 2013 and the amount of certificates is currently targeted to be reduced to 1430 MtCO2 by 2030 (EC 2016). This corresponds to an average reduction of 327 MtCO2 annually, a fourfold of the reduction that I estimate as the effect of subsidy removal.

  12. All monetary values are discounted to 2020, the year when the policy is assumed to be introduced using a discount rate of 10%. There is no anticipation of the policy in the preceding years, as the variables are fixed to “no policy” values for 2010 and 2015.

  13. Until the recent inauguration of President Trump in 2016, the USA, under the Obama Administration, was also pursuing a clear Climate Action Plan (The White House 2013) and enacted a mine moratorium on federal land (Warrick and Eilperin 2016). However, using executive orders, Trump has repealed most of Obama’s climate policies, including the mine moratorium (The White House 2017a). Moreover, he decided to opt-out from the Paris agreement (The White House 2017b) and, against all trends, has committed himself to revitalize the US coal sector.

  14. Their scenario assumes that currently issued licenses where production did not start are revoked and no new licenses are issued; moreover, they account for inter- and infra-fuel substitution.

  15. A detailed description of methodologies for assessing reserves, data origins, and calculation methods can be found in Appendix B. In contrast to BGR (2015) which reports aggregated reserves from various reserve categories and level of confidence, the dataset compiled in Appendix B focusses on reserves in operating mines, with a high degree of confidence. I solely rely on publically available and verifiable sources, and where available, data is collected on the individual mine level. Unfortunately, some of the major producing countries do not report their coal reserves on the required level of detail (see Appendix B for individual assumptions and data limitations).

  16. See Holz et al. (2016) for the implementation of the WEO 450 ppm scenario in COALMOD-World.

  17. See Appendix B for more details and background on this scenario.

  18. China and India were the two single largest importers of steam coal in 2013 (IEA/OECD 2015b) and increase their share of the international steam coal market in the low reserve scenario, as shown in Fig. 1a. For a detailed description of current global coal market trends and more detailed information on India and China, see Oei and Mendelevitch (2018).

  19. Depending on the discount rate and timing of the emissions, EPA reports “social cost of carbon” between US$11/tCO2 and US$95/tCO2 (EPA 2015).

  20. E.g., Forsythe (2016) argues that the current halt of coal-fired power plant construction and coal mines approval in China is rather due to economic reasons than to environmental concerns.

  21. A first attempt in this direction is presented by Kriegler et al. (2016), where the effect of fossil fuel availability on achieving climate targets is examined in a model comparison of three integrated assessment models.


  • AbdelGawad N, Bustos C, Gomez K, Ismail F, Kaufman E, Kaur H, Lasonczyk M, Mncwabe N, Regaignon G, Romero A (2015) Digging deeper: the Human Rights Impacts of Coal in the Global South. Edited by Krizna Gomez and Gregory Regaignon. November. Center for Law, justice and Society (Dejusticia) & Business and Human rights Resource Centre

  • ADB (2015) Fossil fuel subsidies in Indonesia: trends, impacts, and reforms. Asian Development Bank, Mandaluyong City

    Google Scholar 

  • Anderson, Kym, and Warwick J. McKibbin. 2000. Reducing coal subsidies and trade barriers: their contribution to greenhouse gas abatement. Environ Dev Econ, 04 (October):457–481

  • APEC (2010) 2010 Leaders’ Declaration. Asia-Pacific Economic Cooperation. November 13, 2010

  • Bárány, Ambrus, and Dalia Grigonytė. 2015. Measuring fossil fuel subsidies. Brussels, Belgium: European Commission, Directorate-General for Economic and Financial Affairs

  • Bast E, Doukas A, Pickard S, van der Burg L, Whitley S (2015) Empty promises: G20 subsidies to oil, gas and coal production. Overseas Development Institute (ODI) and Oil Change International (OCI)

  • Bauer, Nico, Jérôme Hilaire, Robert J. Brecha, Jae Edmonds, Kejun Jiang, Elmar Kriegler, Hans-Holger Rogner, and Fabio Sferra. 2016. Assessing global fossil fuel availability in a scenario framework. Energy 111 (Suppl. C):580–592.

  • Beaton, Christopher, Ivetta Gerasimchuk, Tara Laan, Kerryn Lang, Damon Vis-Dunbar, and Peter Wooders. 2013. A guidebook to fossil-fuel subsidy reform for policy makers in Southeast Asia. Winnipeg, Canada: International Institute for Sustainable Development

  • Bertram, Christoph, Nils Johnson, Gunnar Luderer, Keywan Riahi, Morna Isaac, and Jiyong Eom. 2015. Carbon lock-in through capital stock inertia associated with weak near-term climate policies. Technol Forecast Soc Chang 90 (Part A):62–72.

  • BGR (2015) Energy Study 2015: Reserves, Resources and Availability of Energy Resources. 19. Hannover, Germany: The Federal Institute for Geosciences and Natural Resources (BGR) on behalf of the German Mineral Resources Agency (DERA)

  • BGR. 2016. Energy Study 2016: Reserves, Resources and Availability of Energy Resources. 19. Hannover, Germany: The Federal Institute for Geosciences and Natural Resources (BGR) on behalf of the German Mineral Resources Agency (DERA)

  • Bhattacharyya, Ranajoy, and Amrita Ganguly. 2017. Cross subsidy removal in electricity pricing in India. Energy Policy 100 (Suppl. C):181–190.

  • Boren ZD (2016) China stops building new coal-fired power plants. Energydesk. March 24, 2016.

  • Burniaux J-M, Chateau J (2014) Greenhouse gases mitigation potential and economic efficiency of phasing-out fossil fuel subsidies. Int Econ 140:71–88.

    Article  Google Scholar 

  • Cardoso A (2015) Behind the life cycle of coal: socio-environmental liabilities of coal mining in Cesar, Colombia. Ecol Econ 120(December):71–82.

    Article  Google Scholar 

  • cmpdi. 2014. UNFC (2004) Classification of Coal Resources of CIL Blocks as on 01.04.2013. Ranchi, India: Central Mine Planning and Design Institute Limited

  • Coady D, Parry I, Sears L, Shang B (2017) How large are global fossil fuel subsidies? World Dev 91:11–27.

    Article  Google Scholar 

  • Collier P, Venables AJ (2014) Closing coal: economic and moral incentives. Oxf Rev Econ Policy 30(3):492–512.

    Article  Google Scholar 

  • Dartanto T (2013) Reducing fuel subsidies and the implication on fiscal balance and poverty in Indonesia: a simulation analysis. Energy Policy 58:117–134.

    Article  Google Scholar 

  • del Granado A, Javier F, Coady D, Gillingham R (2012) The unequal benefits of fuel subsidies: a review of evidence for developing countries. World Dev 40(11):2234–2248.

    Article  Google Scholar 

  • Denniss R (2015) When you’re in a hole - stop digging! The Economic Case for a Moratorium on New Coal Mines. Discussion Paper. The Australian Institute

  • Durand-Lasserve O, Campagnolo L, Chateau J, Dellink R (2015) Modelling of distributional impacts of energy subsidy reforms: an illustration with Indonesia. OECD Environment Working Papers 86. Paris: OECD Publishing

  • EC (2016) Emissions cap and allowances. Text. Climate Action - European Commission. November 23, 2016.

  • Ecofys (2014) Subsidies and Costs of EU Energy. Final Report. Project number: DESNL14583. By Order of European Commission. London: Ecofys

  • EPA (2015) EPA Fact Sheet: Social Costs of Carbon. Washington, D.C., USA: Environmental Protection Agency.

  • Erickson P, Lazarus M (2016) How would phasing out U.S. Federal Leases for Fossil Fuel Extraction Affect CO2 Emissions and 2°C Goals? Stockholm Environment Institute, Working Paper, no. SEI-WP-2016-02 (May), p 1–48

  • Finighan R (2016) The case for a coal mine moratorium: reserves within existing mines versus the carbon budget. Briefing Paper. Melbourne: University of Melbourne

  • Forsythe M (2016) China curbs plans for more coal-fired power plants. The New York Times, April 25, 2016.

  • Fulton, M., T. Buckley, D. Koplow, L. Sussams, and A. Grant. 2015. A Framework for Assessing Thermal Coal Production Subsidies. London, UK: Energy Transition Advisors, IEEFA, Earth Track, Carbon Tracker Initiative

  • G20 (2009) Leaders’ statement the Pittsburgh Summit. G20

  • Gerasimchuk I, Bassi AM, Ordonez CD, Doukas A, Merrill L, Whitley S (2017) Zombie energy: climate benefits of ending subsidies to fossil fuel production. International Institute for Sustainable Development (IISD) and Oil Change International (OCI), Geneva

    Google Scholar 

  • Grantham Research Institute (2015) Nicholas Stern Welcomes Initiative on Coal Mines by Anote Tong, President of the Republic of Kiribati | Grantham Research Institute on Climate Change and the Environment. August 13, 2015.

  • GSI (2011) The friends of fossil fuel subsidy reform: supporting the G-20 and APEC commitments | Global Subsidies Initiative. Global Subsidies Initiative. February 7, 2011.

  • Haftendorn C (2012). Evidence of market power in the Atlantic Steam Coal Market Using Oligopoly Models with a competitive fringe. DIW Berlin Discussion Paper 1185. DIW Berlin, German Institute for Economic Research

  • Haftendorn C, Kemfert C, Holz F (2012) What about coal? Interactions between climate policies and the global steam coal market until 2030. Energy Policy 48:274–283.

    Article  Google Scholar 

  • Heede R, Oreskes N (2016) Potential emissions of CO2 and methane from proved reserves of fossil fuels: an alternative analysis. Glob Environ Chang 36(Supplement C):12–20.

    Article  Google Scholar 

  • Holz F, Haftendorn C, Mendelevitch R, von Hirschhausen C (2016) DIW Berlin: a model of the International Steam Coal Market (COALMOD-World). DIW Data Documentation 85. Berlin: DIW Berlin

  • IEA/OECD (2015a) World Energy Outlook 2015. World Energy Outlook. Paris: International Energy Agency, OECD Publishing.

  • IEA/OECD (2015b). Coal Information 2015. Coal Information. Paris, France: International Energy Agency, OECD Publishing.

  • IEA/OECD. 2016. Glossary. International Energy Agency, Secure, Sustainable, Together.

  • Indonesia Investments (2016) Commodities Indonesia: Moratorium on New Coal Mining Concessions | Indonesia Investments. Indonesia Investments. August 1, 2016.

  • Jakob M, Chen C, Fuss S, Marxen A, Edenhofer O (2015) Development incentives for fossil fuel subsidy reform. Nature Clim Change 5(8):709–712

    Article  Google Scholar 

  • Kojima M, Koplow D (2015) Fossil fuel subsidies: approaches and valuation. Working Paper. World Bank Group, Washington, DC

  • Kriegler E, Mouratiadou I, Luderer G, Bauer N, Brecha RJ, Calvin K, De Cian E et al (2016) Will economic growth and fossil fuel scarcity help or hinder climate stabilization? Clim Chang 136(1):7–22.

    Article  Google Scholar 

  • Lazarus M, Erickson P, Tempest K (2015) Supply-side climate policy: the road less taken. Stockholm Environment Institute, Working Paper, no. SEI-WP-2015-13 (October), p 1–24

  • Lin B, Ouyang X (2014) A revisit of fossil-fuel subsidies in China: challenges and opportunities for energy price reform. Energy Convers Manag 82(June):124–134.

    Article  Google Scholar 

  • McGlade C, Ekins P (2015) The geographical distribution of fossil fuels unused when limiting global warming to 2 °C. Nature 517(7533):187–190.

    Article  Google Scholar 

  • Merrill L, Harris M, Casier L, Bassi A (2015) Fossil-fuel subsidies and climate change. Nordic Council of Ministers

  • NBSC (2015) Statistical Communiqué of the People’s Republic of China on the 2014 National Economic and Social Development. February 2015

  • OCI (2016) The Sky’s the Limit - Why the Paris Climate Goals Require a Managed Decline of Fossil Fuel Production. Washington: Oil Change International

  • OECD (2015a) Fossil fuel support. Inventory of Estimates Budgetary Support and Tax Expenditures for Fossil Fuels 2015. September 2015.

  • OECD (2015b) OECD Companion to the Inventory of Support Measures for Fossil Fuels 2015. OECD Publishing.

  • Oei P-Y, Mendelevitch R (2016) European scenarios of CO2 infrastructure investment. Energy J 37(SI3).

  • Oei P-Y, Mendelevitch R (2018) Prospects for steam coal exporters in the era of climate policies - a case study of Colombia. Clim Pol.

  • Piggot G, Erickson P, Lazarus M, van Asselt H (2017) Addressing fossil fuel production under the UNFCCC: Paris and beyond. Stockholm Environment Institute, Working Paper, no. SEI-WP-2017-09 (September), p 1–32

  • Powering Past Coal (2017) More than 20 countries launch global alliance to phase out coal | UNFCCC. United Nations Climate Change. November 17, 2017.

  • Rajagopal K (2014) Supreme court quashes allocation of 214 coal blocks. The Hindu, September 24, 2014.

  • Rentschler J, Bazilian M (2017) Policy monitor—principles for designing effective fossil fuel subsidy reforms. Rev Environ Econ Policy 11(1):138–155.

    Article  Google Scholar 

  • Richter PM, Mendelevitch R, Jotzo F (2018) Coal taxes as supply-side climate policy: a rationale for major exporters? Clim Chang.

  • Rioux B, Galkin P, Murphy F, Pierru A (2017) How do price caps in China’s electricity sector impact the economics of coal, power and wind? Potential gains from reforms. Energy J 38(01).

  • Rudd A (2015) Amber Rudd’s Speech on a New Direction for UK Energy Policy - Speeches - GOV.UK. Gov.Uk. November 18, 2015.

  • Schwanitz, Valeria Jana, Franziska Piontek, Christoph Bertram, and Gunnar Luderer. 2014. Long-term climate policy implications of phasing out fossil fuel subsidies. Energy Policy 67 (April):882–894.

  • Teng F, Jotzo F, Wang X (2017) Interactions between market reform and a carbon price in China’s power sector. Econ Energy Environ Pol 6(2).

  • The State Council of the People’s Republic of China (2016) Coal capacity guideline issued. The State Council of the People’s Republic of China. February 5, 2016

  • The White House (2013) The President’s Climate Action Plan. The White House, Washington DC

    Google Scholar 

  • The White House (2017a) Presidential executive order on promoting energy independence and economic growth. Whitehouse.Gov. March 28, 2017

  • The White House (2017b) Statement by President Trump on the Paris Climate Accord. Whitehouse.Gov. June 1, 2017

  • Tong A (2015) Moratorium on new and extension of existing coal mines

  • UN (2015) Transforming our world: 2030 agenda for sustainable development. A/RES/70/1. United Nations

  • United Nations Secretary-General’s High-Level Panel on Global Sustainability. 2012. Resilient People, Resilient Planet: A Future Worth Choosing, Overview. New York, USA: United Nations

  • Warrick J, Eilperin J (2016) Obama announces moratorium on New Federal coal leases. The Washington Post. January 15, 2016

  • World Energy Council. 2013. World Energy Resources: 2013 Survey. London: World Energy Council

  • WTO (1994) Agreement on subsidies and countervailing measures

Download references


I would like to thank Christian von Hirschhausen, Franziska Holz, Jasper Meya, Pao-Yu Oei, and Fabian Stöckl, as well as the participants of the DIW Brown Bag Seminar and the International Conference on Fossil Fuel Supply and Climate Policy, Oxford, 2016, for helpful discussions and feedback. Moreover, I would like to thank three anonymous referees for their valuable critique and suggestions.

Tim Scherwath provided excellent research assistance. All remaining errors are with the author.

Author information

Authors and Affiliations


Corresponding author

Correspondence to Roman Mendelevitch.

Additional information

This article is part of a Special Issue on ‘Fossil Fuel Supply and Climate Policy’ edited by Harro van Asselt and Michael Lazarus.

Electronic supplementary material


(DOCX 350 kb)

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Mendelevitch, R. Testing supply-side climate policies for the global steam coal market—can they curb coal consumption?. Climatic Change 150, 57–72 (2018).

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: