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

See text links
below.

By Cain Polidano

Part 4

5. Conclusions

This report shows that the implementation of emission abatement policies is likely to have a significant impact on employment in the coal industry. Global coal employment could fall by 53 per cent under the most stringent emission reduction scenario.

Coal is relatively emission-intensive compared with other fuels, so that emission abatement policies are projected to cause a large reduction in global coal demand and hence in production. There is very little substitution of labour for capital projected in the coal industry under emission abatement policies, so that changes in labour demand are expected to be caused by lower production levels.

Overall, the extent of regional changes in employment under emission abatement polices relative to the reference case depends on the number of workers employed in the coal industry and on changes in coal production. The most labour shed from the coal industry (assuming no wage adjustment) is over 1.4 million from the former Soviet Union and Eastern Europe under the most stringent scenario because of the high number of workers in this sector. These countries use labour more intensively than any other Annex I region.

It is also important to note that there is a projected labour displacement from the coal industry in non-Annex I regions caused by lower coal production there. Despite a higher domestic demand for coal, non-Annex I regions that extensively export coal (especially to Annex I regions) are likely to encounter a large negative impact on exports resulting from lower Annex I coal demand. South Africa, for example, which exports a large proportion of its coal production is projected to encounter over 14,000 displaced workers in the coal sector in 2010 under the less stringent scenario relative to the reference case.

Appendix: Coal demand changes

Annex I countries

Change in coal demand from the electricity sector

Changes in the demand for coal in the electricity sector are shown in figure 8; it is projected to fall in all Annex I regions. The largest fall is projected to occur in the European Union (74.1 per cent under the less stringent scenario). These changes result mainly from fuel substitution in electricity generation. Electricity production is only projected to fall marginally (for example 0.8 per cent in former Soviet Union and Eastern Europe) owing to low income and own price elasticities of demand.

The size of the substitution effect depends on the marginal cost of abatement in each region and the intensity of coal use in electricity production. The greater the marginal cost of abatement, the greater the carbon tax required to meet a 2010 emission reduction target. In turn, the larger the carbon tax, the greater the relative cost increase of coal-fired electricity (coal is more carbon- intensive) and the greater the substitution away from coal-fired electricity. The marginal abatement cost is low in the former Soviet Union and Eastern Europe because the reference case emissions are not expected to return to 1990 levels until 2007 as a result of economic restructuring. Thus, the carbon tax, and the substitution of coal-fired electricity required to meet the 2010 target are not as large in these countries as it is in the European Union and the United States under the less stringent scenario.

There is a large replacement of coal-fired electricity in Canada because of a low marginal abatement cost in the electricity sector. Restrictions on the growth of hydro and nuclear electricity in the MEGABARE reference case scenario mean that much of the electricity demand growth in Canada must be met by a greater proportion of coal-fired electricity in 2010. Thus, there are ample low cost opportunities for emission abatement in this sector.

The share of coal-fired electricity generation is projected to fall by approximately the same amount in the European Union and the United States (33 per cent and 31 per cent respectively) by 2010 under the less stringent scenario. None the less, coal-fired electricity generation is projected to fall by more in the European Union than in the United States because the European Union uses more coal per unit of coal-fired electricity.

Change in coal demand from the iron and steel sectors

Changes in coal demand in Annex I iron and steel-producing industries depend on changes in iron and steel production and, to a lesser extent, the substitution between electric arc furnaces and more coal-intensive blast furnaces. The changes in coal demand from the iron and steel sectors in figure 9 are generally lower than in the electricity sector because the elasticity of substitution between electric arc and blast furnaces is smaller than that between coal-fired and other electricity generation technologies.

The direction and magnitude of changes in the demand for coal by the iron and steel industry reflect the marginal cost of abatement in each region. The demand for coal in the Australian iron and steel industry is projected to fall by the largest amount of all the Annex I regions because of a 23 per cent reduction in iron and steel production and, to a lesser extent, a substitution away from blast furnace-based iron and steel production. The substitution occurs because the carbon tax (marginal cost of abatement) required to achieve the emission abatement target is relatively high. In contrast, a relatively low carbon tax applied in the former Soviet Union and Eastern Europe gives this region a competitive advantage over other Annex I regions in the production of iron and steel, resulting in an increase in iron and steel export demand and overall production.

Non-Annex I countries

Change in coal demand from the electricity sector

Because non-Annex I regions are not required to undertake emission abatement, there is little substitution of fuel sources for electricity generation. Changes in coal demand from the electricity sector are thus driven by changes in production. China, India and South Africa are projected to increase their use of coal for electricity generation by 2.3 per cent, 1.6 per cent and 1.3 per cent respectively under the less stringent scenario (figure 10), owing to a 2.3 per cent, 1.4 per cent and 1.3 per cent increase in electricity production respectively. Electricity production is projected to increase in these countries because of GDP gains relative to the reference case which increase the demand for factors of production, including electricity. Electricity production in China is projected to increase by more than in other Annex I regions because of a relatively larger projected GDP gain under the less stringent scenario.

Change in coal demand from the iron and steel sectors

Coal demand in the non-Annex I iron and steel sectors is projected to increase under the less stringent scenario relative to the reference case in response to higher levels of non-Annex I country iron and steel production associated with carbon leakage. Demand for coal in the iron and steel sectors is projected to increase by 9.6 per cent, 7.6 per cent and 17.2 per cent in China, India and South Africa respectively under the less stringent scenario relative to the reference case (figure 11). As was the case for electricity production, there is very little technology substitution in the production of iron and steel in non-Annex I regions. As a result, changes in coal demand in the iron and steel sectors are closely linked to changes in production. The increase in iron and steel production in South Africa is projected to be relatively high because South Africa exports a higher percentage of production than do China and India, producing a larger positive trade effect. The increase in iron and steel production in China and India is driven mainly by increased domestic demand associated with GDP gains.

References

ABARE and the Department of Foreign Affairs and Trade 1995, Global Climate Change: Economic Dimensions of a Cooperative International Policy Response beyond 2000, ABARE, Canberra.

ABARE 1996, The MEGABARE Model: Interim Documentation, Canberra.

Bernstein, P., Montgomery, D. and Rutherford, T. 1996, The International Impact Assessment Model, University of Colorado and Charles River Associates Incorporated, Washington DC.

Brown, S., Donovan, D., Fisher, B., Hanslow, K., Hinchy, M., Matthewson, M., Polidano, C., Tulpulé, V. and Wear, S. 1997, The Economic Impact of International Climate Change Policy, ABARE Research Report 97.4, Canberra.

Burniaux, J-M., Martin, J., Nicoletti, G. and Martins, J. 1991, GREEN -- A Multi-Region, Dynamic General Equilibrium Model for Quantifying the Costs of Curbing CO₂ Emissions: A Technical Manual, Department of Economics and Statistics Working Paper 104, OECD, Paris.

Edmonds, J., Pitcher, H.M., Barns, D., Baron, R. and Wise, M.A. 1995, "Modeling future greenhouse gas emissions: the second generation model description", in Modelling Global Change, United Nations University Press, Tokyo.

Edmonds, J. and Reilly, J. 1983, "Global energy and CO₂ to the year 2050", Energy Journal, vol. 3, no. 4, pp. 21-47.

Hinchy, M., Thorpe, S. and Fisher, B. 1993, A Tradable Emissions Permit Scheme, ABARE Research Report 93.5, Canberra.

Industry Commission 1991, Costs and Benefits of Reducing Greenhouse Gas Emissions, Report no. 15, AGPS, Canberra.

Manne, A. and Richels, R. 1992, Buying Greenhouse Insurance -- The Economic Cost of CO₂ Emission Limits, MIT Press, Cambridge, Massachusetts.

McKibbin, W. and Wilcoxen, P. 1992, G-Cubed: A Dynamic Multisectoral General Equilibrium Model of the Global Economy, Brookings Discussion Paper in International Economics no.128, Brookings Institution, Washington DC.

Reilly, J. 1997, "Climate change and agriculture -- local, national and global impacts", in Outlook 97, Proceedings of the National Agricultural and Resources Outlook Conference, Canberra, 4-6 February, vol. 1, Commodity Markets and Resource Management, ABARE, Canberra, pp. 49-63.

Rutherford, T. 1993, "The welfare effects of fossil carbon restrictions: results from a recursive dynamic trade model", in The Costs of Cutting Carbon Emissions: Results from Global Models, OECD, Paris.

Schneider, K., Donovan, D., Tessema, G. and Fisher, B.S. 1997, International Climate Change Policy: Impacts on Developing Countries, ABARE Research Report 97.8, Canberra.

United Nations 1992, United Nations Framework Convention on Climate Change, New York.

Whalley, J. and Wigle, R. 1991, "The international incidence of carbon taxes", in Dornbush, R. and Porterba, J. (eds.), Economic Policy Response to Global Warming, MIT Press, Cambridge, Massachusetts.

Weyant, J. 1994, Integrated assessment of climate change: an overview and comparison of modelling approaches, Paper prepared for writing team 6/7 of Working Group III, Intergovernmental Panel on Climate Change in Geneva, Energy Modelling Forum, Stanford University, September.

Weyant, J., Cline, W., Fankhauser, S., Davidson, O., Dowlatabadi, H., Edmonds, J., Grubb, M., Parson, E.A., Richels, R., Rotmans, R., Shukla, P.R. and Tol, R.S.J. 1995, Integrated Assessment of Climate Change: An Overview and Comparison of Approaches and Results, Climate Change 1995 -- Economic and Social Dimensions of Climate Change, Cambridge University Press, Massachusetts.

Yang, Z. et al. 1996, The MIT Emissions Prediction and Policy Assessment (EPPA) Model, MIT Joint Program on the Science and Policy of Global Change, Report no. 6, MIT Press, Cambridge, Massachusetts.

Updated by BR. Approved by OdVR. Last update: 28 September 2000.