There has been much discussion of fossil fuel subsidies as both an inefficient use of public tax dollars and a barrier to the scaling up of low- and no-carbon energy sources. As “green” incentives are reduced, the phase-out of fossil fuel subsidies becomes even more urgent in order to reduce market distortions and ensure a level playing field in energy markets.

Key Findings

Production subsidies summing up to:

  • Nearly US$8 per tonne in the US Powder River Basin ($2.9b/year); and
  • Nearly US$4 per tonne ($1.3b/year) in Australia.

The removal of these subsidies would result in:

  • A 8%-29 % reduction in demand for US PRB coal, with associated cumulative reductions of 0.7 to 2.5 GtCO2 to 2035, equivalent to 9 to 32 coal plants.
  • A 3%-7% reduction in demand for Australian Seaborne coal, though with unknown carbon reductions due to substitution of coal from other (often also-subsidized) producers.

Removing subsidies to coal extraction should be a central plank of any country’s fiscal and environmental plan. Particularly as subsidies to renewable energy come under increasing pressure, subsidies to the mature coal sector should not be ignored. A broader geographic range for coal subsidy elimination will boost the carbon benefits, as the ability for coal supplies to move in from other subsidized markets will be constrained.