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The impact of climate change policies on employment in the coalmining industry

By Cain Polidano

Part 3

Changes in labour demand from the coal industry

Climate change policies affect the demand for labour in the coal industry in two ways. First, changes in the production of coal reduce the demand for factors of production, including labour. Second, changes to the nominal wage relative to the price of capital induce coal producers to substitute labour for capital.

Table 7. Changes in labour demand in the coal industry at 2010 due to emission reductions in Annex I regions

(Per cent relative to reference case)

It is projected that the substitution effect on labour demand in the coal industry is minor under both the less and more stringent scenarios. Tables 6 and 7 show that the percentage change in coal production is similar to the percentage change in labour demand in the coal industry. Substitution of labour for capital is particularly low in Annex I regions because, as shown in table 8, there is only a small change in the price of capital relative to the nominal wage (both fall by similar amounts). In non-Annex I regions, wages fall relative to capital prices and there is a slight substitution toward labour. Under the less stringent scenario, for example, coal output is projected to decline by 7.6 per cent in non-Annex I regions, while the demand for labour is projected to fall by 3.3 per cent, indicating an increase in labour used per unit of output. Overall, changes in labour demand in the coal industry can be largely attributed to changes in coal production.

Table 8. Changes in factor costs at 2010 under the less stringent emission abatement scenario

(Per cent relative to reference case)

The changes in regional coal production and the consequences for employment in the coal industry in the case of the less stringent scenario are outlined below.

Changes in Annex I regional coal production

Annex I regional coal production is influenced by the negative export effect and the lower domestic demand effect. The negative export effect is a result of lower global coal demand (figure 3). Lower domestic demand is a result of lower fossil fuel-intensive production and a shift towards less fossil fuel-intensive iron and steel and electricity generation technologies. These two effects work in tandem, but the dominance of one effect over the other depends on whether domestic coal production is used mainly as a domestic or is exported.

Figure 3 shows that the trade effect is larger than the domestic effect in Australia, and Canada. Exports from Australia and Canada account for 82 per cent and 73 per cent of production (value weighted) respectively, which means that coal demand in these regions is highly vulnerable to changes in global demand. The trade effect is higher in Canada where it is expected to cause a 24.3 per cent reduction in demand, which is approximately half of the 47.9 per cent fall in total coal production (figure 2). In contrast, the United States, the former Soviet Union and Eastern Europe (FSU&EE) and the European Union use most of their coal domestically for producing iron and steel and electricity, so that the domestic effects exceed the trade effects.

The magnitude of the trade effects presented in figure 3 depend on the change in coal exports and the proportion of coal production that is exported. The fall in Annex I exports is dependent on the proportion of total exports that are destined for Annex I regions. Given carbon leakage, demand for, and hence production of, coal is projected to fall by more in Annex I regions than in non-Annex I regions (table 6). For instance, coal exports to Annex I regions as a percentage of total exports are relatively lower in Australia (figure 4), corresponding to a relatively smaller reduction in exports compared with Canada, the United States and the former Soviet Union and Eastern Europe (figure 5). Despite shipping a lower percentage of exports to Annex I regions, Canadian coal exports are projected to fall by more than in the United States and the former Soviet Union because approximately 50 per cent of Canadian coal exports are destined for Japan, which is projected to experience the greatest fall in coal demand.

Despite relatively large reductions in coal exports, the trade effect in the United States and the former Soviet Union and Eastern Europe is relatively small compared with the trade effect in Australia (figure 3). Australia exports a higher proportion of its coal production, so that changes in coal production are more sensitive to changes in export demand.

The domestic impact of lower coal demand in the electricity and iron and steel sectors is projected significantly to affect coal production in every Annex I region (figure 3). Changes in coal demand from the iron and steel sector are driven primarily by changes in iron and steel production associated with carbon leakage. In contrast, changes in coal demand in the electricity sector are primarily a result of a shift toward less emission-intensive fuels in response to relative fuel price changes. The elasticity of substitution among electricity generation technologies is greater than between iron and steel technologies, allowing for greater technology substitution in the electricity sector.

The largest reduction in domestic coal use is projected to occur in the European Union (55.9 per cent at 2010 relative to the reference case) as a result of the increased use of natural gas in electricity production. The fall in coal demand is exacerbated in the European Union by a relatively high use of coal per unit of coal-fired electricity. The regional impact of less stringent emission abatement on coal demand in the electricity and iron and steel industries are discussed in more detail in the appendix.

Changes in non-Annex I regional coal production

Because non-Annex I regions are not required to undertake mission abatement measures, there is no carbon tax applied to non-Annex I fossil fuels. As a result there are only minor changes in relative fuel prices and little technology substitution in the electricity and iron and steel sectors. Changes in coal use in these sectors are largely attributable to changes in iron and steel and electricity production. For instance, the relatively large increase in domestic coal demand in China is a result of an increase in domestic demand for iron and steel and electricity driven by projected gains in GDP. The increase in domestic coal demand in South Africa is from a 17 per cent increase in iron and steel production associated with carbon leakage.

Changes in employment in the coal industry

Table 9. Changes in coalmining employment at 2010 under emission abatement policies

(Deviation from reference case)

Table 10. Coalmining employment, 1992

Table 10 shows that coalmining employment is higher in non-Annex I coal-producing countries than in the Annex I coal industry. The amount of labour per unit of output is greater in non-Annex I regions, especially in China and India, thus changes in global labour demand from the coal sector are more sensitive to changes in non-Annex I labour demand. Most coalmining employment in the Annex I coal industry is in the former Soviet Union and Eastern Europe, where labour applied per unit of output is the highest among Annex I regions.

The most significant displacement of labour from the coal industry is projected to occur in the former Soviet Union and Eastern Europe, with over 900,000 fewer jobs in coalmining under the less stringent scenario at 2010 than under the reference case. The number of jobs displaced is large despite a relatively low projected fall in coal output because of the high absolute size of the coal industry workforce in these countries. In contrast, labour demand in the Canadian coal industry is projected to fall significantly in percentage terms under emission abatement policies but, because there are relatively few workers employed in the Canadian coal sector, the number of displaced workers is relatively small.

It is important to note that, despite not having to undertake emission abatement actions, some non-Annex I regions are projected to face a fall in coal employment levels relative to the reference case. South Africa, for example, is projected to face between 14,000 and 17,000 job losses in the coal industry under the less stringent and more stringent scenarios respectively because of lower coal production relative to the reference case.

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