Oil Change International

Exposing the true costs of fossil fuels

Background on Coal Subsidies

Coal Subsidies Transfer Public Money to Private Interests

New coal developments require huge amounts of capital. Subsidies are powerful instruments that can lure investments into coal development. A ‘subsidy’ transfers public money to private interests, including through direct expenditures, below-market financing, tax breaks, below market-rate goods or services, price controls, and negative externalities.

Importance of Coal Subsidies for Economic Viability

New coal developments, whether for mining, power plants, or transport infrastructure, require huge amounts of capital. The construction of a 600-megawatt coal-fired power plant can cost more than US$2 billion.

As such, the development of coal in any given situation will largely depend on the financial decisions of investors and banks, both private and public.  These decisions are determined by the costs and benefits of a project, which is most often heavily determined by the level of public assistance, or subsidies, in its many forms.

Subsidies are powerful instruments and are often used to lure investments into particular sectors and projects. In fact, subsidies such as tax breaks, cheap land and water, and public loan guarantees are often the deciding factor whether or not a project gets financed.

Subsidies can play a legitimate role in securing public goods that would otherwise remain beyond reach, such as access to electricity for the poor. But too often subsidies are misdirected to promote publically harmful industries and to line the pockets of the rich and powerful.

It deserves to be noted that subsidies do not reduce the costs of energy or electricity.  Subsidies simply move the costs onto society in different ways. Someone always pays – either through taxes, foregone revenue, or foregone expenditure.  Subsidies represent a drain on national budgets – often resulting in a lack of investment in social programs (health services, education), infrastructure, etc. In many countries, spending on fossil fuel subsidies greatly exceeds support to public health and education.

Moreover, subsidies to oil, gas, and coal undermine international efforts to avert dangerous climate change. The IMF argues that eliminating these fossil fuel subsidies could cut global greenhouse-gas emissions by 13 percent, curtail air pollution, and shore up the finances of many poorer countries now in debt trouble.

Definition of Coal Subsidies

According to the World Trade Organization, a subsidy is a transfer of funds or a potential transfer of funds from a government or public body through a grant, loan, equity infusion, or loan guarantee; a government fiscal incentive such as a tax credit; a government-provided good or service other than general infrastructure; or a government payment to a funding mechanism or private body to carry out one or more of the functions illustrated above.

Or put more simply – a subsidy is any government policy or activity that lowers consumer prices or transfers money to producers, reduces their cost of operations, bears risk or increases their returns.

As such, subsidies can be identified based on five main pathways:

  1. Transfer of funds or liabilities – e.g., government-provided loans or insurance/guarantees
  2. Foregone government revenue – e.g., tax exemptions/credits
  3. Provision of goods or services below market rate – e.g., free/low cost land and water, construction of rail infrastructure to serve coal projects, royalty reductions
  4. Income or price support – e.g., electricity and fuel price controls
  5. Negative externalities – costs of production & consumption do not account for social costs, e.g., climate change, public health, and crop damage.

The section below on identifying coal subsidies provides a check list of subsidy types accompanied by a short explanation, tips for estimating the value, and sources of information/subsidy data.  For the purposes of better understanding who is benefitting from a particular subsidy, the types of subsidies discussed above should be further categorized according to consumer and producer.

Consumer Subsidies

Consumer subsidies mainly arise when the prices as for electricity or fuel paid by consumers, including both firms (intermediate consumption) and households (final consumption), are held below a benchmark market price due to government policies and/or programs.  Consumer subsidies typically stimulate excessive fuel or electricity consumption by industry or the public. Initiatives aimed at subsidy reform, including those by the World Bank, have largely focused on consumer subsidies partly because they are more easily quantifiable than producer subsidies and typically display more visible strains on government budgets.

Producer Subsidies

Producer subsidies to coal are poorly estimated and understood by researchers and government, and it is therefore often difficult to obtain data on them. Producer subsidies distort the market by making it easier for firms to enter and operate within the exploration, extraction (e.g. coal mining), processing, transportation, and power generation sectors, implicitly gaining a competitive advantage over non- or less-subsidized industries, such as renewables, and making the businesses more profitable or financially viable than they otherwise would be.

Exploration Subsidies

Producer subsidies for exploration deserve extra emphasis and urgent attention. Through new exploration – especially in Australia, India, and Indonesia – hard coal reserves grew by 26 billion tons (3.6%) in 2011. This translates to total global coal reserves of 1,038 billion tons, or 132 years of the world’s coal output at current rates of production.[1] At the same time, scientists have determined that at least two-thirds and possibly more of the world’s current, proven reserves[2] of oil, gas, and coal must not be burned if we are to avoid raising global temperatures above 2 degrees Celsius – the globally agreed limit.

Thus, any subsidy for coal exploration is incompatible with preventing the worst impacts of climate change and should be considered inconsistent with any government’s or multilateral institution’s mission.

Return to Top ⇧

Subsidies to the Coal Industry are Significant

The amount of subsidies depends on the definition and the assumptions used to value the subsidies. The following section provides several estimates of coal-specific subsidies developed by various international and national entities.  Producer subsidies tend to be less transparent and more difficult to estimate.  As such, the existing fossil fuel and coal subsidy estimates tend to greatly underestimate the overall level of subsidies.

Estimates of National Coal Subsidies

The OECD estimates coal subsidies at $11.7 billion annually in the 34 OECD countries. This includes budgetary support and tax expenditures only.[3] Meanwhile, a recent IMF assessment put global coal subsidies at $539 billion annually globally. Unlike most fossil fuel subsidy estimates, the IMF estimate includes the cost of externalities, along with consumer and some producer subsidies.[4] In contrast, the IEA estimates that only $88 billion was directed toward renewable energy in 2011.

Table 1 provides estimates of coal subsidies across European countries based on OECD data.  The countries of Germany, Spain, and Poland provide the largest subsidies to coal, with Germany far surpassing all other European countries at $3.3 billion in 2011.

Table 1. European Coal Subsidies 2011
Country Coal Subsidy (million USD)
Austria 92
Belgium 0
Czech Rep 144
Denmark 325
Estonia 5
Finland 207
France 4
Germany 3,297
Greece 1
Hungary 96
Ireland 103
Italy 0
Luxembourg 0
Poland 841
Portugal 17
Slovak Republik 153
Slovenia 51
Spain 840
Sweden 123
UK 129
Total 6,428

Source: OECD country databases[5]

The IMF’s assessment of coal subsidies, which includes externalities, indicates that Asia accounts for around half of global coal subsidies and that they represent substantial costs to these countries. Coal subsidies are estimated to equal 14.27% of government revenue in China and 10.08% in India (see Table 2).

Table 2. Post-tax Subsidy as Percent of Government Revenue
Country Coal Electricity Petroleum Products Gas
China 14.27 1.34 0.88 0.42
India 10.08 1.97 10.24 1.79
Thailand 3.73 7.77 6.16 3.19
Malaysia 3.38 2.54 23.39 3.63
Philippines 2.65 0.0 1.18 0.43
Indonesia 2.62 4.04 21.74 1.67
Bangladesh 0.71 25.26 11.30 21.31

Source: IMF, 2013

Estimates of International Public Finance for Coal

It is important to note that neither the OECD nor the IMF subsidy assessments include public international finance from multilateral development banks (MDB), export credit agencies (ECA), and bilateral development finance.

Since 2007, international institutions have financed over $60 billion in coal projects, with MDBs accounting for at least $12.8 billion and ECAs and national development finance accounting for over $46 billion (see Tables 3 and 4 below). The international public finance figures should be considered incomplete because data is not available for many institutions and does not catch every coal project for every year. For example, coal funding taking place through financial intermediaries or policy lending is rarely accounted.

Table 3 below indicates that the MDB that provides the most coal funding is the World Bank Group with $6.1 billion since 2007.

Table 3. Multilateral Development Bank Coal Funding 2007-present
Institution Amount (USD billion)
World Bank Group $6.08
African Development Bank $2.84
European Investment Bank $1.58
Asian Development Bank $0.79
European Bank for Reconstruction and Development $0.66
Inter-American Development Bank $0.20
Total $12.87

Source: Databases maintained by Oil Change International (WB, IFC, MIGA, IDB, AfDB, and ADB, http://shiftthesubsidies.org/), and CEE Bankwatch (EBRD & EIB).  For 2013, data were only available from the World Bank Group.  All other MDBs are updated through 2012. These data likely underestimate amounts – for example, it does not capture all coal financing through policy loans and financial intermediaries.

Based on available data (see Table 4), the Japan Bank for International Cooperation (JBIC) ranks as the top public financial institution source of coal finance, accounting for nearly $13 billion since 2007.[6] By country of origin, the most public coal funding comes from Japan with $17.2 billion, US with $7.2 billion, China with $6.1 billion, and Germany with $4.9 billion.  It should be kept in mind that these figures are incomplete due to data limitations and do not include the domestic coal financing that some of these institutions provide.

Table 4. Export Credit Agency and Bilateral Coal Finance 2007 to present
Institution Amount (USD billion)
Japan Bank for International Cooperation (JBIC) $12.93
US ExIm Bank $7.24
Nippon Export and Investment Insurance (NEXI-Japan) $5.28
China Development Bank $4.61
Euler Hermes $2.92
Korea Exim Bank $2.54
Russian Development Bank (VEB)[7] $2.50
China Exim Bank $2.45
Kreditanstalt für Wiederaufbau (KfW) $1.93
COFACE (France)[8] $1.71
Bank of China $1.23
Industrial and Commercial Bank of China (ICBC) $0.35
Korea Trade Insurance Corporation (K-sure) $0.30
Netherlands Development Finance Corp $0.12
UK Export Finance (UKEF) $0.09
Nordic Investment Bank (NIB) $0.07
Total $46.27

Source: Data obtained from the databases maintained by Pacific Environment (US EXIM), EarthJustice (US EXIM), Natural Resources Defense Council (KfW, Hermes, JBIC, NEXI, JICA, KEXIM, K-SURE, China Development Bank, China EXIM, Bank of China, ICBC, FMO, COFACE, UKEF, NIB, & VEB-Russia), Japan Center for Sustainable Environment and Society (JBIC, NEXI, & JICA). Limited funding data for 2013 was available and only includes the US EXIM, JBIC, and VEB.

Incomplete Data on Coal Subsidies

It is important to keep in mind that the national, global, and bilateral coal subsidy and finance figures significantly underestimate the total amount of public assistance because the data are largely incomplete. Reporting on public finance and other forms of subsidies is highly inconsistent and not transparent. As a result, data are not available for many countries and finance institutions, and data do not account for all years.

Read more about coal’s vast impacts on climate, health and environment

Return to Top ⇧


return to intro identifying right v2


[1] Energiestudie 2012,” Deutsche Rohstoffagentur, Bundesanstalt für Geowissenschaften und Rohstoffe, 2012.

[2] Proven reserves are not only considered to be recoverable but can also be recovered economically. This means they take into account what current mining technology can achieve and the economics of recovery. Proved reserves will therefore change according to the price of coal; if the price of coal is low proved reserves will decrease.

[3] OECD, 2013. Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels 2013. http://www.keepeek.com/Digital-Asset-Management/oecd/environment/inventory-of-estimated-budgetary-support-and-tax-expenditures-for-fossil-fuels-2013_9789264187610-en#page1

[4] IMF, 2013. Energy Subsidy Reform: Lessons and Implications. It is unclear what portion of the IMF’s externalities represent carbon emissions.  The IMF’s climate damages are calculated based on the “social cost of carbon” (SCC). The IMF uses a conservative SCC of $34 per ton, derived from the work of the U.S. Interagency Working Group on Social Cost of Carbon. The UK government’s latest SCC calculation is $41-$124 per ton of CO2.

[5] Euro converted to USD using average December 2011 exchange rate.

[6] In the last ten years, JBIC has supported at least 20 coal power projects in developing countries with a total capacity of over 20 GW. JACSES, Kiko Network and FoE Japan. http://sekitan.jp/jbic/?lang=en

[7] Vnesheconombank

[8] Compagnie Francaise d’Assurance pour le Commerce Exterieur