WORLD COAL DEMAND, SUPPLY, AND TRADE: A MAXIMIZATION ANALYSIS

Radical developments in the economics and politics of world oil supply have led to a resurgence in demand for coal. Over the 25-year horizon, world coal use should increase three-fold and international coal trade should increase about four-fold. Increases of these magnitudes will have profound macroeconomic impacts on many countries and this study attempts to determine the directions and magnitudes of these flows. In addition, it seeks to analyze the effects of industrial policies directed toward the coal industry--the effects of government coal supply, demand, and transportation cost policies. The role of U.S. coal on future world coal markets is of particular interest, because the country has the potential of being the world\u27s dominant exporter. Among the questions addressed are, have government actions hurt U.S. coal exports? Or could they be directed toward promoting foreign sales more effectively? This study provides a framework for analyzing these kinds of issues by modeling efficient production, allocation, and price patterns for world coal trade over the 1980-2004 period. This is accomplished through the construction and solution of an international trade flow model, a coal supply model, and an electric sector interfuel substitution model. The supply and demand modeling take process analysis approaches. The trade flow model solves the Cournot-Enke classical transportation problem by employing a quadratic programming optimization framework. This model focuses on the maximization of Samuelson\u27s net social payoff concept and produces optimal endogenous production levels, prices, and trade flows. The main conclusion of the analysis is that U.S. coal will be competitive on future world coal markets, especially after 1990, largely because the United States is the only producer capable of being the world\u27s balancing supplier. In pure price terms, however, Australia, South Africa, and Canada will all be able to produce and deliver coal somewhat cheaper. The main trade flows are expected to be eastward across the United States, from the U.S. east coast and South Africa to Europe, and from Canada, Australia, and the U.S. Rockies to the Pacific Rim