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Reducing coal subsidies and trade barriers: their contribution to greenhouse gas abatement

Published online by Cambridge University Press:  03 November 2000

CEPR, and School of Economics and Centre for International Economic Studies, University of Adelaide, Adelaide, SA 5005. Email:
Research School of Pacific and Asian Studies, Australian National University, ACT 0200 and the Brookings Institution, Washington, DC. Email:


International negotiations for an agreement to reduce the emission of greenhouse gases have not produced cost-effective policies for reducing emissions, not least because they 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 at least some 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 have encouraged excessive production of coal in a number of industrial countries and excessive coal consumption in numerous developing and transition economies. This paper documents those distortions and outlines the circumstances under which their reform (currently under way in some countries) could both improve the economy and lower greenhouse gas emissions globally. It then quantifies the effects on economic activity as well as global carbon emissions, 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.

Research Article
© 2000 Cambridge University Press

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This paper draws on two earlier ones: an Invited Paper for the 41st Australian Agricultural and Resource Economics Society Conference, held at Broadbeach, January 20–25, 1997, and a paper prepared for the Global Environment and Trade Study based at the London Business School, Yale University, and the University of London's Foundation for International Environmental Law and Development. The authors are grateful for very helpful comments from conference participants plus Scott Barrett and two anonymous referees. Financial support from the Australian Research Council and the MacArthur Foundation is gratefully acknowledged. Since this paper used the G-Cubed model developed jointly with Peter Wilcoxen, it has also benefited from funding of a project at the Brookings Institution and has received financial support from the US Environmental Protection Agency through Cooperative Agreement CR818579–01–0 and from the National Science Foundation through grant SBR–9321010. The views expressed are those of the authors and should not be interpreted as reflecting the views of others including the trustees, officers or other staff of the University of Adelaide, the Australian National University, the Brookings Institution, the Environmental Protection Agency, or the National Science Foundation.