Review of Economic Studies Vol. 91 No. 4 2024
Market Power in Coal Shipping and Implications for U.S. Climate Policy
Abstract
Economists have widely endorsed pricing CO2 emissions to internalize climate change-related externalities. Doing so would significantly affect coal, the most carbon-intensive energy source. However, U.S. coal markets exhibit an additional distortion: the railroads that transport coal to power plants can exert market power. This article estimates how coal-by-rail markups respond to changes in coal demand. I identify markups in a major intermediate goods market using both reduced-form and structural methods. I find that rail carriers reduce coal markups when downstream power plant demand changes due to a drop in the price of natural gas (a competing fuel). My results imply that decreases in coal markups have increased recent U.S. climate damages by $11.9 billion, compared to a counterfactual where markups did not change. Incomplete pass-through would likely erode the environmental benefits of an incremental carbon tax, shifting the tax burden towards upstream railroads. Still, a non-trivial tax would likely increase welfare.
- DOI
- 10.1093/restud/rdad090
- Volume
- 91
- Issue
- 4
- Pages
- 2508-2537
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref