Environmental Policy Induced Input Substitution? The Case of Coking and Steam Coal

Abstract

The Clean Air Act of 1990 initiated a tradable permit program for emissions of sulfur dioxide from coal-fired power plants. The effect of this enlightened policy on the coal industry was a large increase in consumption of low-sulfur bituminous and subbituminous coals. Low-sulfur bituminous coal is most attractive to coal-fired power plants as they have higher heat content and require less alteration to the boiler to burn as effectively the coal previously in use. However, low-sulfur bituminous coal is also the ideal coal for coking. The analysis presented here will attempt to determine whether the increased consumption of low-sulfur bituminous coal for electricity generation caused a decrease in the quality and/or quantity of coking coal consumption. Most evidence suggests that the market for coking coal was unaffected, even as the consumption of low-sulfur bituminous coal for electricity generation increased substantially. Implications of potential greenhouse gas regulation on this market are also discussed.