Energy Economics 34 (2012) 1244–1249

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Energy Economics
journal homepage: www.elsevier.com/locate/eneco

International coal trade and restrictions on coal consumption

David A. Riker ⁎
University of Maryland, College Park, MD, USA

a r t i c l e i n f o a b s t r a c t

Article history: Coal consumption is a major source of CO2 emissions and other air pollutants and is therefore a focus of en-
Received 11 August 2009 vironmental policy. However, countries that restrict their coal consumption will likely expand their coal ex-
Received in revised form 9 November 2011 ports to foreign markets with fewer restrictions on consumption. The adjustment in international trade will
Accepted 17 November 2011
mitigate the impact on coal industry employment but will also reverse some of the reduction in global emis-
Available online 3 December 2011
sions. This paper quantifies the impact of restrictions on coal consumption in the United States and several
JEL classification:
other large countries on global coal consumption, trade, and industry employment. The impact calculations
F14 are based on an econometric model of the international coal market. The parameters of the model are fitted
F18 to panel data on coal consumption and production in 53 countries.
Q41 © 2011 Elsevier B.V. All rights reserved.
Q48

Keywords:
International trade
Coal
Econometric analysis
Environmental policy

1. Introduction on the price responsiveness of consumption and production in each of

There is considerable debate over how to reduce emissions of CO2
and other greenhouse gases. Because coal consumption is a major
source of CO2 emissions, accounting for approximately one-third of
total U.S. emissions in 2008, coal consumption is often a focus of en-
vironmental policy. 1 While there is hope that technological innova-
tion can reduce the rate of emissions per ton of coal consumed,
there is likely a limit to the reductions in total emissions that can be
achieved through cleaner coal-burning processes. 2 As a practical mat-
ter, significantly reducing emissions requires some reductions in the
level of coal consumption.
Countries that reduce their coal consumption will still have abun-
dant coal production capacity. Coal producers in these countries will
offset some of the decline in production levels by expanding exports
to foreign markets that do not restrict consumption. The result is an
increase in coal consumption abroad, and the resulting increase in
emissions abroad (often described as leakage) will offset some of
the emissions reductions achieved by the countries that reduce their
consumption levels. The extent of leakage will depend fundamentally
⁎ Tel.: + 1 301 424 6540.
E-mail address: david_riker@verizon.net.
1 3
DOE (2008). U.S. Department of Energy. Emissions of Greenhouse Gases in the
United States 2008. Report #DOE/EIA – 0573(2008).
2 4
DOE (2006) provides a summary of progress toward the development of low emis-
sions coal energy alternatives.
the countries that trade coal. It will also depend on the number of
countries that limit their coal consumption. If more countries restrict
their coal consumption, then leakage will be reduced, but the nega-
tive impact on coal production and industry employment will be
magnified.
This paper presents an econometric model of the international
coal market that relates coal production and consumption in each
country to its national aggregate expenditures, population, coal re-
serves, coal prices, and barriers to international trade. The model im-
plies a system of reduced-form equations for the volumes of coal
consumption and production in each country. These equations serve
as the specification in an econometric analysis. I fit the parameters
of the econometric model to annual panel data that include 53 coun-
tries over the 10-year period between 1999 and 2008. 3
The paper presents three sets of economic impact calculations
based on the econometric model. In all three scenarios, coal con-
sumption is reduced by 10% in participating countries and there are
no restrictions on consumption in the rest of the international mar-
ket. In the first scenario, the United States, Canada, and the European
Union reduce coal consumption by 10%, for a combined annual reduc-
tion of 178 million tons. 4 According to the model, the 112 million ton
The econometric analysis also includes alternatives that fit the model to a longer
time period.
The tables of results also report several variations of the model as a sensitivity
analysis.

0140-9883/$ – see front matter © 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.eneco.2011.11.007
 D.A. Riker / Energy Economics 34 (2012) 1244–1249
decrease in U.S. consumption is partly offset by a 52 million short ton
increase in U.S. coal exports. The direct impact on the CO2 emissions
of the participating countries is a reduction of 318 million metric
tons. Because there is an increase in coal consumption in countries
that do not participate, the net global reduction in CO2 emissions is
only 253 million metric tons. The restriction in coal consumption re-
duces U.S. coal industry employment by approximately 4800
workers.
The second scenario adds Australia, Japan, and New Zealand to the
list of participating countries, and the third scenario adds China. As
more countries restrict coal consumption, there is less of an increase
in U.S. coal exports and therefore a larger negative impact on U.S.
coal industry employment. In the second scenario, U.S. coal exports
increase by 35 million tons, and U.S. coal industry employment falls
by approximately 6200 workers. The impacts on U.S. industry em-
ployment and net global CO2 emissions are substantially larger in
the third scenario, since China is the largest coal consumer in the
world.
The econometric approach in this paper is an alternative to the
computable general equilibrium (CGE) approach to modeling climate
change policies in Anderson and McKibbin (2000), Babiker (2005),
Bohringer and Rutherford (2002), Kremers et al. (2003), Light
(1999), and Weyant (1999). 5 The econometric approach and the
CGE approach have different strengths and limitations, and in this
sense they are complementary analyses. My econometric approach
utilizes observed fluctuations in the GDP of each of the trading coun-
tries to statistically identify the relative magnitudes of the price re-
sponsiveness of coal consumption and coal production. I fit the
parameters of the model to recent international data, and the esti-
mates have confidence intervals that quantify the precision of the
predicted economic impacts.
On the other hand, the econometric model lacks several important
capabilities of CGE models. First, policies to reduce emissions would
likely be applied more broadly than the coal industry. For example,
the policies could have a direct impact on the prices of other fossil
fuels that are substitutes for coal. The impact calculations in this
paper implicitly hold fixed the price of substitute fuels. To the extent
that there are comparable restrictions applied to substitute fuels, the
calculations based on the econometric model could overstate the neg-
ative impact on production volumes.
Second, the impact calculations based on the econometric model
treat GDP in each country as an exogenous variable. If restrictions
on coal consumption were to reduce the country's GDP, this could af-
fect factor prices and have general equilibrium effects on coal produc-
tion decisions. However, from the perspective of the coal industry, the
general equilibrium effects would likely be small relative to the direct
effects on consumption, exports, and industry employment that are
the focus of the econometric model.
Third, the economic impact calculations based on the econometric
model do not try to predict whether any workers that are displaced
from the coal industry will be re-employed in other industries or re-
main unemployed, and the calculated impact on coal industry employ-
ment implicitly assumes fixed wages. A CGE model with perfect labor
markets would predict that the displaced coal workers would be re-
employed in other parts of the economy and that there would be a
small decline in wage rates. The decline in wage rates would mitigate
the reduction in coal industry employment. For this reason, the esti-
mate based on the econometric model is likely an upper bound (and
overestimate) of the decline in industry employment.
The rest of the paper is organized as follows. Section 2 describes
the data set used in the econometric analysis. Section 3 presents the
5 6
Smith et al. (1995) is another example of an econometric approach. It includes
country-specific econometric models of fossil fuel demand, but the econometric anal-
ysis is limited to eight countries.
1245
Trade Share of Global Coal Consumption
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Fig. 1. Trade share of global coal consumption. Source of the data: EIA.
modeling framework. Section 4 reports the impact calculations.
Section 5 offers concluding remarks.
2. Overview of the data
The Energy Information Administration (EIA) in the U.S. Depart-
ment of Energy reports annual coal consumption and production by
country between 1980 and 2008. The EIA data include more than
200 countries or territories in total, but many of these had minimal
coal consumption and production volumes in most years and there-
fore are not included in the model. The EIA also publishes annual sta-
tistics on CO2 emissions from coal consumption in each of the
countries, 2005 estimates of national coal reserves, employment and
labor productivity in the U.S. coal industry, and the domestic and for-
eign distribution of shipments of coal produced in the United States.
International coal trade has increased over the past three decades.
Fig. 1 shows that the ratio of worldwide coal exports to worldwide
coal consumption increased from 7.2% in 1980 to 15.0% in 2008. On
a global basis, the EIA data report that there is a less than 1% imbal-
ance between consumption and production in 2008, as expected. At
the national level, however, imbalances between consumption and
production volumes are large. Countries that produce more coal
than they consume are net exporters. Table 1 lists the volumes of
coal consumed and produced in the largest coal-consuming countries
in 2008. India, Germany, Japan, and South Korea consumed more coal
than they produced in 2008. China, the United States, countries that
were part of the Former Soviet Union, South Africa, Australia, and Po-
land consumed less than they produced.
GDP is an important determinant of its volume of coal consump-
tion. In the 10-year period between 1999 and 2008, there was a
correlation of approximately 0.55 between each country's GDP and
its annual volume of coal consumption. The GDP measure in this
analysis is the United Nations' annual constant-dollar measure of
GDP.6
The volume of U.S. coal exports adjusts to fluctuations in demand
in the U.S. and abroad. Between 1980 and 2008, annual U.S. coal ex-
ports reached a high of 114 million tons and a low of 40 million
tons, a swing of over 70 million tons. U.S. export volumes can increase
substantially from year to year. For example, between 2006 and 2008,
U.S. coal exports increased by 32 million tons.
The EIA's 2007 data on the distribution of U.S. coal shipments
across domestic and foreign markets indicate that most U.S. coal pro-
duction is already shipped long distances. In 2007, 744 million tons
The model is also estimated using each country's final consumer expenditure, an
alternative measure of real aggregate expenditure that is published by the United
Nations.
1246 D.A. Riker / Energy Economics 34 (2012) 1244–1249

Table 1 and producers in exporting countries are indifferent between export-

National coal consumption and production levels in 2008. ing and domestic shipments. The trade costs create a wedge between
Country Consumption in millions Production in millions the coal price in each country and the global component of coal
of short tons of short tons prices, PW. The wedge Sj is equal to the magnitude of the trade
China 2830 2848 costs. It is negative if country j is a net exporter of coal and is positive
United States 1122 1171 if country j is a net importer. Therefore, Pj = PW + Sj in equilibrium.
India 638 568
FSU Countries 457 563
3.2. Coal consumption and production
Germany 270 214
Japan 204 0
South Africa 194 260 Eq. (1) is a linear approximation of the supply curve of coal pro-
Australia 161 439 ducers in country j in each year. 9
Poland 149 158
Republic of Korea 113 3
Y j ¼ α j þ βj Pj þ εj ð1Þ
All others 1110 1047

Source of the data: EIA.

were shipped out of the state of origin and beyond the neighboring
states. In addition, over 60% of U.S. coal exports in 2007 originated
in major land-locked production states, including 34% from West Vir-
ginia, 14% from Wyoming, and 12% from Kentucky. These statistics in-
dicate that the major coal-producing states have significant access to
the broader international coal market, and that significant increases
in U.S. coal exports are feasible.
In 2008, the U.S. coal industry employed almost 87,000 workers,
down from 174,000 workers in 1985. The workforce in 2008 was con-
centrated in a few states, with 25.4% in West Virginia, 21.8% in Ken-
tucky, 9.5% in Pennsylvania, and 7.9% in Wyoming.
The model in this paper does not address fluctuations in coal
stocks. EIA does not publish international data on coal stocks, but its
data for the United States indicate that fluctuations in coal stocks
are not a significant factor in the annual data examined in the econo-
metric analysis: while U.S. coal stocks are substantial at any point in
time, the year-to-year fluctuations are relatively small. For example,
the year-end coal stock in the U.S. averaged 20.3% of U.S. annual con-
sumption over the time period, but the variance of the annual ratios
was only 0.3%. To the extent that flows in and out of inventories
were steady, the magnitudes of the coal stocks will be absorbed in
the country fixed effects of the econometric model.
Finally, many of EIA's international coal data series aggregate all
types of coal. The series do not distinguish between ranks of coal
(e.g., anthracite, bituminous, lignite). Due to this data limitation, the
econometric model also aggregates across the ranks of coal.
(Section 3.3 discusses how the data aggregation affects the interpre-
tation of the econometric model.)
3. Framework for modeling the international coal market
The equations for the equilibrium in the international coal market
are the basis for the econometric specification and for the economic
impact calculations.
Yj is the volume of coal produced in country j, αj is a country-
specific effect that is fixed over the estimation period, Pj is the
country-specific price of coal, and εj represents unobservable supply
factors. The coefficient on price in this equation increases in Rj, the
level of proven coal reserves in country j. Specifically, βj = βRj2.
Eq. (1) is derived from a coal industry cost function in the Appendix.
Eq. (2) is a linear approximation of the coal demand curve in
country j in each year.
C j ¼ γ j þ δj GDPj −φj P j þ μ j ð2Þ
Cj is the volume of coal consumed in country j, GDPj is the
constant-dollar national aggregate expenditure in country j, γj is a
country fixed effect, and μj represents unobservable demand factors.
The coefficient on price in the consumption equation increases in
the size of the market, GDPj. Specifically, φj = φ GDPj. The magnitude
of the coefficient on price could also reflect possibilities for energy
conservation and substitution of alternative fuels, though the model
does not include a country-specific analysis of fuel switching possibil-
ities. The coefficient on aggregate expenditure in the country is in-
creasing in the country's population, Nj, consistent with patterns in
the data. Specifically, δj = δNj.
Eqs. (1) and (2) allow for differences in the volumes of coal pro-
duction and consumption across countries through the country
fixed effect, the levels of aggregate expenditure, reserves, and popula-
tion, and the unobservable variables. The econometric model also in-
cludes year fixed effects in both of the equations. The year fixed
effects control for developments in alternative fuel sources and
other forms of technological progress that are discussed in Smith et
al. (1995).
The volumes of coal consumption and production in the different
countries are linked through the global component of coal prices,
PW. Eq. (3) is the global market-clearing condition that implicitly de-
termines PW for each year.
∑k Y k ¼ ∑k C k ð3Þ

3.1. Costs of international trade

In each year, the sum of coal production in all of the countries
Although international coal trade has been expanding over time (indexed by k) is equal to the sum of coal consumption in all of the
and there is evidence of increased global market integration, trade countries.
is still limited for two reasons.7 First, it is costly to ship coal between
countries. Second, many countries can supply their requirements 3.3. Aggregation of different ranks of coal
from their own reserves. 8
In the model, trade costs are represented by constant marginal There are many ranks of coal, including anthracite, bituminous,
costs per ton that vary across countries but are fixed over the estima- sub-bituminous, and lignite. However, the model treats coal as if it
tion period. Consumers in importing countries are indifferent be- were a homogenous commodity, because most of the EIA internation-
tween imports and the domestic product at market clearing prices, al coal data are reported on an aggregated (i.e., all coal) basis. Since
the model is linear, aggregation of the coal volumes across these
7 ranks is not problematic, and the coefficient estimates from the
Warell (2006) uses a cointegration analysis to quantify the extent of global market
integration in the coal industry.
8 9
International Energy Agency, OECD (1997). The equations that follow omit the time subscript to simplify the notation.
 D.A. Riker / Energy Economics 34 (2012) 1244–1249
Table 2
Econometric estimates.
Reduced form coefficient Baseline specification
π1 987.7497
(19.36182)
π2 − 0.0376049
(0.0034039)
π3 0.0108321
(0.000531)
R2 for the consumption equation 0.9928
R2 for the production equation 0.9658
Number of observations 530
The table reports the point estimates of the reduced-form coefficients in Eqs. (4) and (5), with the standard errors in parentheses. All three of the specifications include country
fixed effects and year fixed effects and are estimated using SUR to correct for cross-equation correlation of the error terms.
aggregate model can be interpreted as the sum of the coefficients in
rank-specific models. 10
3.4. Reduced-form equations
The structural relationships in Eqs. (1), (2), and (3) imply a
reduced-form relationship between the endogenous variables (con-
sumption levels, production levels, and prices) and the exogenous ex-
planatory variables (aggregate expenditure levels, national coal
reserves, population, and all of the fixed effects in the model).
Eq. (4) is the reduced-form expression for coal consumption in coun-
try j. 11
C j ¼ ωj þ π1 GDPj Nj þ π2 GDPj ∑k ðGDPk Nk Þ þ uj
ωj is a country fixed effect that is a combination of αj and γj from
Eqs. (1) and (2). ∑k(GDPk Nk) is a sum across all of the countries in
the international market, and uj is an error term that is a linear com-
bination of the error terms from Eqs. (1) and (2) and the trade costs.
Likewise, Eq. (5) is the reduced-form expression for coal production
in country j.
2 trade or industry employment in the model. If there is a combination
Y j ¼ θj þ π3 Rj ∑k ðGDPk Nk Þ þ vj
θj is a country fixed effect that is a combination of αj and γj from
Eqs. (1) and (2), and vj is an error term that is a linear combination
of the error terms in Eqs. (1) and (2) and the trade costs.
3.5. Coefficients Estimates
The econometric analysis estimates the reduced-form coefficients
in Eqs. (4) and (5) rather than the structural parameters in Eqs. (1)
and (2). The reduced-form coefficients π2 and π3 are sufficient to cal-
culate the changes in coal exports, industry employment, and global
consumption that would result from country-specific restrictions on
coal consumption. Table 2 reports the estimates of these reduced-
form coefficients. The coefficients are estimated using the Seemingly
Unrelated Regression technique to correct for cross-equation correla-
tion in uj and vj, and the standard errors are correlated for heteroske-
dasticity. All versions of the econometric specification include
country fixed effects and year fixed effects.
There are a few important points to note about the estimates in
Table 2. First, the estimates of the reduced-form coefficients have rel-
atively small standard errors. Second, the estimates of π2 and π3 have
10
The Appendix discusses the aggregation of the rank-specific models in more detail.
11
The Appendix derives the reduced-form coefficients from the structural parame-
ters in Eqs. (1), (2), and (3).
1247
Alternative specification Alternative estimation Alternative estimation
with final consumer expenditure period 1980–2008 period 1980–1998
2450.358 736.421 667.6854
(57.57435) (14.46273) (37.39794)
− 0.2356235 − 0.0384078 − 0.0237965
(0.0115785) (0.0023611) (0.0060214)
0.0192236 0.0071516 0.0072283
(0.0009507) (0.0002137) (0.0003277)
0.9875 0.9758 0.9800
0.9658 0.9279 0.9647
530 1537 1007
the expected signs and are significantly different from zero at the 99%
confidence level. This indicates that fluctuations in real aggregate ex-
penditure in foreign markets have a significant impact on the volume
of consumption and production in each country.
The four columns of estimates in Table 2 represent alternative sets
of modeling assumptions. The first column is the baseline specifica-
tion. The second column includes final consumer expenditures, rather
than GDP, in the model. The third and fourth columns extend and
then contract the sample period of the econometric estimation. The
small differences in the estimates across the columns indicate that
the estimates are not highly sensitive to these alternative modeling
assumptions.
ð4Þ 4. Impact calculations
Emissions from coal consumption can be reduced by lowering the
rate of emissions per ton consumed, the number of tons consumed, or
both. For example, a tax on consumption or emissions will likely re-
duce consumption levels and induce some technological improve-
ments that lower emissions rates. If environmental policy objectives
can be fully achieved by technological improvements that reduce
emissions rates, then there will be no effect on equilibrium coal
ð5Þ
of reductions in the emissions rate and reductions in tons consumed,
it is only the latter effects that are quantified in the impact calcula-
tions in this section. One could view the impact calculations as cau-
tionary: they quantify the economic impacts that can be avoided
through complete technological solutions rather than reductions in
the volume of coal consumed.
Since the model in Eqs. (1), (2), and (3) is linear, the magnitudes
of the economic impacts are proportional to magnitude of the reduc-
tions in coal consumption (holding constant the other exogenous fac-
tors in the model, like national aggregate expenditures). The modeled
impacts reported in Tables 3 and 4 correspond to hypothetical 10% re-
ductions in coal consumption. The impacts would each be twice as
large, for example, if the participating countries reduced their coal
consumption by 20%.
Fig. 2 summarizes the assumptions about consumption reductions
for three alternative scenarios. In the first scenario, a 10% reduction in
U.S. coal consumption is matched by 10% reductions in Canada and
the European Union. The combined consumption reduction is 178
million tons (approximately 2.5% of global coal consumption in
2008). In the second scenario, the 10% reduction is also matched by
10% reductions in Australia, Japan, and New Zealand, and the com-
bined consumption reduction is 215 million tons. In the third scenar-
io, the 10% reduction is also matched by reductions in China, and the
combined consumption reduction is 498 million tons (approximately
7% of global coal consumption in 2008).
Eq. (6) quantifies the impact of the reduction in coal consumption
on U.S. coal exports. It is the difference between the equilibrium
1248 D.A. Riker / Energy Economics 34 (2012) 1244–1249

Table 3
Baseline estimates of the economic impacts.

10% Reduction in U.S., 10% Reduction in U.S., E.U., Canada, 10% Reduction in U.S., E.U., Canada, Japan,
E.U., and Canada Japan, Australia, and New Zealand Australia, New Zealand,and China

Mandated reduction in U.S. coal consumption 112,171 112,171 112,171

(thousand short tons)
Increase in U.S. exports of coal 52,224.97 34,728.75 − 72,136.33
(thousand short tons) ± 2,700.98 ± 2,529.95 ±5,064.73
Reduction in U.S. coal industry employment 4,835.53 6,246.85 14,867.09
(number of workers) ± 217.87 ± 204.08 ±408.55
Sum of the CO2 emissions associated with the Consumption 317,740 383,450 888,094
reductions in the participating countries
(thousand metric tons)
Net global reductions in CO2 emissions 252,906.70 326,721.50 777,575.20
(thousand metric tons) ± 11,395.10 ± 10,673.70 ±21,367.70

The table reports the point estimates of the economic impacts and their 95% confidence intervals. The mandated reductions do not have confidence intervals, because they are
hypothetical policy scenarios, not estimates.

Table 4
Sensitivity analysis of economic impacts. 10% Reduction in Coal Consumption in the U.S., E.U., Canada, Japan, Australia, and New Zealand.

Baseline specification with Alternative specification with Alternative estimation Alternative estimation
GDP and 1999–2008 final consumer expenditure period 1980–2008 period 1980–1998

Mandated reduction in U.S. coal consumption 112,171 112,171 112,171 112,171

(thousand short tons)
Increase in U.S. exports of coal 34,728.75 48,708.01 40,526.40 34,131.90
(thousand short tons) ± 2529.95 ± 2767.92 ±2190.91 ± 5833.38
Reduction in U.S. coal industry employment 6246.85 5119.22 5779.19 6295.00
(number of workers) ± 204.08 ± 223.28 ±176.73 ± 470.55
Sum of the CO2 emissions associated with the 383,450 383,450 383,450 383,450
consumption reductions in the participating countries
(thousand metric tons)
Net global reductions in CO2 emissions 326,721.50 267,744.40 302,261.80 329,239.60
(thousand metric tons) ± 10,673.70 ± 11,677.60 ±9,243.20 ± 24,610.50

The table reports the point estimates of the economic impacts and their 95% confidence intervals. The mandated reductions do not have confidence intervals, because they are
hypothetical policy scenarios, not estimates.

change in U.S. coal production and the change in U.S. coal consump-
tion, both measured in thousands of tons.
" #
2
π3 Rus
ΔExportsus ¼ ΔC þ 112; 171
∑j π 3 R2j −∑i π2 GDP
ΔC represents the combined reduction in coal consumption in all of
the participating countries. The subscript j is an index of all countries in
the international market. The subscript i is an index of all of the coun-
tries that do not restrict coal consumption. The first term on the right-
hand side of Eq. (6) is the induced change in U.S. coal production, and
112.171 million tons is the 10% decline in U.S. coal consumption that is
analyzed in all three scenarios. Eq. (6) is derived in the Appendix.
The reduction in U.S. coal consumption results in an increase in
U.S. coal exports in the first two scenarios. Table 3 reports that, in
the first scenario, the increase in exports of 52 million tons offsets ap-
proximately 47% of the reduction in U.S. coal consumption, and this
mitigates the negative impact on U.S. coal industry employment.
The increase in exports is smaller the more countries join the United
States in reducing coal consumption, because there are fewer foreign
markets to absorb additional exports. In the third scenario in which
China also reduces coal consumption, the impact on U.S. exports is
negative. In this case, the decline in equilibrium coal prices reduces
U.S. production even more than the reduction in U.S. consumption.
As noted above, the recent patterns of in U.S. coal shipments indi-
cate that the predicted increases in U.S. coal exports in the first two
scenarios are plausible in magnitude. Total U.S. coal production was
over one billion tons in 2008, 79% of U.S. coal production is already
shipped considerable distances from the mine, and coal production
in the land-locked producing states of West Virginia, Kentucky, and
Wyoming has well-established access to export markets.
Eq. (7) quantifies the impact on U.S. coal industry employment.
 " 2
#
1 π3 Rus
Δ Employmentus ¼ ΔC ð7Þ
12; 397 π3 ∑j R2j −π2 ∑i GDPi
ð6Þ
In 2008, average labor productivity in the U.S. coal industry was
12,397 tons per employee-year. The employment impacts are
reported in Table 3. In the first scenario, U.S. coal industry employ-
ment declines by 4,836 workers, approximately 5.6% of the industry
workforce in 2008. The employment impact grows larger as the num-
ber of participating countries increases, reaching 17.2% of the work-
force in the third scenario.
The third impact calculation quantifies the change in global coal
consumption. There is both a direct negative impact in countries
that restrict consumption and a partly offsetting positive impact on
coal consumption (and CO2 emissions) in the remaining countries in
response to the decline in coal prices. In equilibrium, the net change
in global coal consumption is the sum of the changes in coal produc-
tion in each country.
" 2
#
π3 ∑j Rj
Δ Global Consumption ¼ ΔC ð8Þ
π3 ∑j R2j −π2 ∑i GDPi
The change in global coal consumption can be translated into an
approximate change in global CO2 emissions (assuming fixed emis-
sions rates) by multiplying by an average emissions rate of 1.7835
metric tons of CO2 per short ton of coal consumed. 12 Table 3 indicates
12
The model does not address the more limited CO2 emissions from coal production.
In contrast, the model in Anderson and McKibbin (2000) addresses both emissions
from coal production and coal consumption.
 D.A. Riker / Energy Economics 34 (2012) 1244–1249
Fig. 2. 10% Reduction from 2008 coal consumption volumes. Source of the data: EIA.
that the share of direct emissions reductions that are offset through
leakage depends on how many countries restrict their coal consump-
tion. 13 Each of the columns corresponds to one of the three scenarios.
The estimated net reduction in global coal consumption (and the as-
sociated CO2 emissions) increases with the number of countries that
are agree to restrict consumption, ranging from 253 million metric
tons per year in the first scenario to 778 million metric tons per
year in the third scenario. Within each column in Table 3, the differ-
ence between the final two rows of estimates reflects leakage. The
difference ranges from 57 million metric tons to 111 million metric
tons.
Table 4 examines the sensitivity of the economic impact calcula-
tions to the underlying econometric model. Each column of estimates
in Table 4 corresponds to a different econometric specification from
Table 2, but they are all based on the second scenario (i.e., a 10% re-
duction in coal consumption in the U.S., Canada, the European
Union, Australia, Japan, and New Zealand). The first column is the
baseline model with a GDP measure of aggregate expenditures and
the 10-year estimation period 1999–2008. This column is repeated
from Table 3 to facilitate comparison across the alternative specifica-
tions. The results in the baseline model are fairly robust to the varia-
tions in the assumptions of the econometric model. The largest
13
The confidence intervals in Tables 3 and 4 reflect the statistical uncertainty of the
econometric estimates. They do not measure the precision of the EIA's average CO2
emissions rate.
1249
variation comes from using the final consumer expenditure measure,
rather than its GDP, in the demand equation.
5. Conclusions
Efforts to limit a country's coal consumption will, to some extent,
reduce the country's coal industry employment. International coal
trade determines the relative magnitude of these adjustments. The
basic trade-off between coal consumption and industry employment
will shift as more countries join in reducing coal consumption. If
more countries restrict their coal consumption, then leakage will be
reduced, but the negative impact on coal production and industry
employment will be magnified.
Appendix A. Supplementary data
Supplementary data to this article can be found online at doi:10.
1016/j.eneco.2011.11.007.
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