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Energy Policy

Hard Coal Subsidies: A Never-Ending Story?

In Germany, hard coal has been subsidized for almost half a century. Despite the declining significance of hard coal production for the domestic labor market, the subsidies have continued to increase until the middle of the last decade, reaching a peak at €6.7 billion in 1996. While these subsidies have been continually shrinking since then, settling at €2.7 billion in 2005, it is very likely that hard coal support will be extended in Germany well into the next decade and even beyond. This article questions the main arguments raised by the proponents of hard coal subsidization in Germany and other EU countries. Most importantly, in addition to the drain these subsidies impose on public budgets, substantial opportunity costs are implied, leading funds away from alternative, more beneficial public investments. From a social welfare perspective, we, therefore, recommend the rapid abolition of these subsidies not only in Germany, where in real terms the accumulated amount of subsidies has now far exceeded €165 billion, but also all across Europe.

Frondel, M., R. Kambeck and C. Schmidt (2007), Hard Coal Subsidies: A Never-Ending Story?. Energy Policy, 35, 7, 3807-3814

DOI: 10.1016/j.enpol.2007.01.019