sectoral economic costs and benefits of ghg mitigation - IPCC

Fossil Fuels
expensive to move and to store, only about 14.5 percent of the world’s coal production is sold in
an international market. Thus, the world’s coal industry is dominated by production for local use
– although local performance is increasingly being assessed against the performance standards
required in the international market 1 .
According to recent IEA analyses, the power generation sector would be extremely sensitive to
any increase in the CO 2 price of its fuel – reacting by shifting away from high CO 2 content coal –
first to natural gas (or possibly even oil), and ultimately to non-CO 2 sources such as nuclear
power and renewables. Such sensitivity suggest that even small increases in price would bring
significant shifts away from coal – although care must be taken not to underestimate the ability
of the coal industry to respond to price signals and lower costs of production (and transport) to
remain competitive. In addition, care must be taken not to assume shifting away from coal will
necessarily occur immediately: pricing, availability of alternatives and market inertia will dictate
how rapidly any change might happen.
Currently, the world’s five largest exporters account for approximately 70% of world coal
exports; the top ten account for 93% percent. Table 3 makes clear, however, that the largest
exporters (the US and Australia), each of which supply a substantial share of their exports to
OECD countries, are likely to feel the heaviest losses.
Table 3
Coal Exports of Top Ten Coal Exporting Countries
Country
R/P ratio
Total Exports
% to non
% to OECD
(thousand tons)
OECD
1. Australia 412.9 162,298 77.7% 22.3 %
2. USA 263.5 70,510 80.3 % 19.7 %
3. South Africa 248.4 67,103 68.2 % 31.8 %
4. Indonesia 87.4 46,913 48.7 % 51.3 %
5. Canada 225.1 34,179 87.0 % 13.0 %
6. China 92.7 32,289 71.9 % 28.1 %
7. Colombia 200 29,571 70.8 % 29.2 %
8. Poland 122.4 28,055 85.6 % 14.4 %
9. Kazakhstan 507 ~25,000 0 % 100 %
10. Russia 1056 23,478 63.6 % 36.4 %
TOTAL TOP 10 240 519,000 70.3 % 29.7 %
Source : IEA databases.
Of the two top-five non-Annex I Parties, Indonesia seems likely to offset losses in its potential
exports through its own internal growth: between 1980 and 1996, Indonesia’s domestic
consumption of coal was growing at 28 percent per year 2 . Furthermore, approximately half of its
exports are sent to non-Annex I Parties – exports which could in theory continue as these
countries do not have binding emissions reductions obligations. South Africa’s internal growth is
not as rapid, and it exports only approximately one third of its total to non-Annex I Parties. It
seems likely that of the major non-Annex I coal exporting countries, South Africa could feel the
greatest impact.
The market price for coal varies depending on the grade of the coal; it is currently approximately
$45 per ton for steam coal. Assuming that coal prices decline by as much as 30% as a result of
1 IEA “Coal Information 1998” published 1999. Note that internationally traded coal has traditionally been
restricted to higher quality coals and coal that has been cleaned and processed to a higher extent than
locally burnt coal – to maximize energy content with respect to the high transport costs.
2 Note: Indonesian growth declined precipitously in 1997 with the Asian region’s economic collapse;
depending on how rapidly the economy picks up, domestic capacity may take longer to absorb any decline
in exports.
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