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A Commission report arguing for the preservation of state aid to the coal industry was criticised by environmentalists as a missed opportunity to end subsidies for what they consider the "dirtiest" of all fossil fuels.
Europe's coal industry has been declining since the 1950s, as prices for imported coal decreased and local extraction costs increased. With the expiry of the European Coal and Steel treaty in 2002, the EU adopted the Coal Regulation in order "to allow for the continued restructuring of the coal industry". Under the regulation, continued state aid is allowed on the condition that it follows a "downward trend".
Coal subsidies are a controversial issue, and the EU has been criticised for continuing to subsidise what is widely considered a "dirty" source of energy. Environment Commissioner Stavros Dimas and Enterprise and Industry Commissioner Günter Verheugen have been at odds over how to balance environmental concerns with competitiveness, particularly with respect to the allocation of funds to traditional industries such as coal (EurActiv 28/02/07).
The EU has not expressed a commitment to phase out coal completely from Europe's energy mix. Instead, investment in "clean coal" technologies is considered vital for "continuing to benefit from the availability, proximity and flexibility of this abundant source of energy".
In June 2005, the Commission approved a "coal package", authorising restructuring plans for the Polish, German and Hungarian coal industries until 2010. The package included approval for a €12 billion grant to ten coal mines in Germany, with four of them scheduled for closure by the end of the decade.
LinksDossier: Coal: a clean energy source for the future?
The Commission, on 21 May 2007, released a report concluding that the Coal Regulation, which sets out rules for the provision of state aid for the coal industry until 2010, is functioning well and does not need to be adjusted.
According to the report, "distortion of the market within the EU", due to state aids to the coal industry "seems to be limited by the fact that most subsidised coal covered by the Coal Regulation is consumed in the national market".
NGOs have argued that coal subsidies have an impact on the supply options for the EU electricity market, and thus prevent the growth of renewables. The report refutes this assertion. It cites a study conducted by think-tank Europe Economics, which concludes that, with respect to electricity generation, state aid to local coal production does not affect the overall fuel mix, only the choice between imported and domestic coal. This point was also highlighted by European electricity industry body Eurelectric during the stakeholder consultation.
The report does indicate, however, that guaranteed state support of coal could have an impact on any decision to invest in a new coal-fired plant.
Euracoal, the European association for coal and lignite, agrees with the Commission, saying that the abundance of coal makes it an indispensable element of the EU's energy mix.
"A far-sighted energy policy has to be based on the triangle of sustainability objectives, with equal weight being given to environmental compatibility, competitiveness and security of energy supply," says Euracoal. "An equitable energy mix that has been developed under normal competitive conditions is the best way to achieve a balance between these energy policy objectives."
Greenpeace criticised the Commission's report, stating: "If Europe is serious about fighting climate change, as is claimed, then it must divert public money and support from polluting energy sources such as coal to clean energy options such as efficiency measures and renewable energy technologies. With today's report, the Commission has missed an opportunity to put an end to coal subsidies once and for all."
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