Cost-Benefit Analysis of Buying Non-Use Rights for Coal Mines

Cost-Benefit Analysis of Buying Non-Use Rights for Coal Mines

Economics

Joshua Muthu

2024

Coal is the deadliest and dirtiest major energy source on the planet. Buying “non-use” rights for coal mines - the right to not exploit, but rather shutter, coal mines upon purchase, could reduce coal production. If there is a global market for non-use rights, marginally profitable mines can be bought, reducing the potential for supply leakage. I perform an indicative cost-benefit analysis on non-use of coal mines in two countries where the supply of two different types of coal is currently marginally profitable: Indonesia and Australia. I find the benefit-cost ratio of buying the median Indonesian coal mine for a year of non-use is 21.00 (low and high estimates: 11.02 and 31.65), and equivalent ratio for the median Australian coal mine is 12.90 (low and high estimates: 6.76 and 19.43). Thus, I find that the purchase of one-year non-use rights for marginally profitable coal mines is both theoretically sound and practically justifiable.