sectoral economic costs and benefits of ghg mitigation - IPCC

Fossil Fuels
Of the three major Annex B exporters under reference, Australia is the most trade exposed in
terms of the Kyoto Protocol: highest tonnage and share of thermal coal – and Japan as a
significant customer.
Indonesia, like Australia, exports around 75% of total coal production. Colombia exports 88% of
production, while RSA exports 30% of production. China places only a very small percentage of
total coal production on the world market (around 3%), although this may have implications for
foreign exchange and shipping/port activities in China.
The USA faces significant adjustment costs – over half (56%) of its electricity was generated
from coal in 1998. Under Kyoto conditions, the DOE EIA modelling shows the collapse of the
domestic coal industry.
The USA Western coalfield (which is mainly sub-bituminous coal) carries the majority share of
this burden – over 75% of reduction …but this is a key USA low sulphur coal source.
The EU-15 coal market is expected to continue to decline in the short-term as part of the
adjustment process associated with the restructuring of the competitive electricity energy market.
EU-15 hard coal consumption in 1998 was around 250 Mt, down 100 Mt (over 28%) on the 1990
level of 350 Mt. “Local” production has declined at an even faster rate as imports have expanded
rapidly under competitive market conditions. Notwithstanding this reduction in coal consumption
– and hence a significant reduction in CO 2 emissions – the level of GHG emissions for the EU-15
remains the same in 1998 as the level in 1990.
Demand for coal by the EU-15 steel industry – around 60 Mt per annum – could be “exported” to
countries without Kyoto targets if the EU steel industry becomes less competitive under Kyoto.
Japan is the world’s largest coal importer at around 130 Mt per year with half (65 Mt) destined
for its steel industry. Like the EU, the Japanese steel industry will be vulnerable to lower cost
steel production from countries not applying Kyoto conditions – and the coal trade will move to
the new (non-Annex B) source of the demand.
The Kyoto Protocol will impose costs on coal – and the impact will not be trade neutral. There is
a dramatic variation in coal demand across both producer and consumer countries: coal for steel
maintains its market – although different countries expand steel production and the coal trade
moves in sympathy to this new market situation.
The Kyoto outcome is very dependent on who ratifies…EU-15, Japan, USA ... and technical
innovations over the next two decades.
A global assessment
ABARE (in its Research Report 99.6: ‘Economic Impacts of the Kyoto Protocol – Accounting
for the three major greenhouse gases’, Canberra, May 1999) has examined the impacts of
abatement policies on coal.
Under independent abatement, coal production is projected to decline most significantly in the
USA, largely as a result of a reduction in domestic coal demand. The considerable decline in
domestic production reflects the relatively severe economic cost that independent abatement
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