A subsidy to a polluting activity increases the level of that activity and therefore the amount of pollution it generates, ceteris paribus. In Western Europe, coat production is generally subsidized through price support and budgetary transfers; in Central Europe, both production and consumption are subsidized. To analyse the net effects of coal policies in Europe, however, one cannot treat them simply as equivalent to pure taxes or subsidies - other distortions besides those that are price induced have to be taken into account. Our qualitative assessment suggests that eliminating producer and consumer subsidies to coal in Europe would lead to environmental improvements and remove an important barrier to introducing greater competition in national electric power industries.