In the most countries we have the intervention of government to support domestic industries, additionally in Germany. In this paper I’m going to write about the economic relevance to subsidise hard coal in Germany. I won’t go into details about the general economic instrument of subsidies I will only show that the subsidies of the hard coal are inefficient.

My essay is divided into three main parts. In the first paragraph I will give a general explanation about the meaning of subsidies and some facts about hard coal industry in Germany.

In the second paragraph I will explain that it is economic inefficient to subsidies hard coal industry in Germany.

In the last paragraph I ‘m going to specify the main arguments for coal subsidies and the contra arguments.

Nowadays there are some political and economic discussions about the relevance of hard coal subsidies. On the one handside we have got the supporter of hard coal, they claim that it is right to subsidize this sector. On the other handside there are the opponents, which say that it is economic

At last I’ m going to lead to a conclusion. I will summarize the main results of my

2. Definition of subsidies

Basically subsidies are payments made by the government to companies or special industries. Their target is to improve the economic situation of these sectors. The important sectors are tax break and benefits. Tax break means that the taxes are reduced for this companies and benefits in terms of money.

So subsidies are an instrument of trade policy to protect and support the domestic industries. 1

Subsidies are financed by the population of a country. The people have to pay taxes. The taxes are used to finance for example the education system, community health, road works and some industries. One can say everybody finance these industries.

3. Coal subsidies in Germany

The coal mining industry is a very high subsidised area. Since 1980 the hard coal industry received more than 100 billion Euros. 2 The main part of the coal subsidies is used to make the hard coal more competitive than foreign coals. Government subsidies represent almost 30% of all subsidies for trade and industry. In the diagram you can see, that the subsidies decrease. In the time 1996 to 2005 the subsidies have fallen about 52%. 3

Figure 1: Financing assistance for German hard coal

Cp. Parkin, Michael, Economics Third Edition, Essex, 1997, p. 506 Cp. Steinkohlenbergbau im öffentlichen Auftrag, Internet publication: URL:

[22 June 2005] Cp. ibid. [22 June 2005]

The reason for the subsidies reduction is that the government doesn’t have enough money to spend on subsidies. That’s why more and more people are asking about the economic relevance of subsidies.

The hard coal is very important for the energy and steel industry. 52% of the german energy is produced by coal. But the portion of the coal for energy production constantly decreases. 4 With the help of subsidies the German hard coal industry is fake competitive. Every tax payer finances the hard coal industry with 100 € per ton. 5

4. Economic relevance

In this chapter I’m going to answer the question if it is economic efficient to subsidise the production of hard coal in Germany.

The total consumption is 45 billion tons per year. But the mining industry only produces 26.4 billion tons. Germany has to import over 40% of hard coal to cover the total consumption. The deviation comes from Poland, South Africa and Russia. 6

To produce one ton of hard coal costs 140 Euro. To import hard coal costs only 40 Euro per ton. This price is free on board. Free on board means the fees are

inclusive. Fess could be taxes, customs duties and so on. 7 One can see that there is a difference between the countries about 350%.

Cp. Kohlekraft in Deutschland, Internet publication: URL: http://wiw.f4.fhtw- [22 June 2005] Cp. Umweltschäden- Folgen des Bergbaus, Internet publication: URL: http://

[22 June 2005] Cp. Kohlekraft in Deutschland, Internet publication: URL: http://wiw.f4.fhtw-

[22 June 2005] Cp. Infoblatt Subventionen, Internet publication: URL: http://www.klett-verlag.de/klett

[22 June 2005]