EU commissioners yesterday (29 September) approved the plan, first announced in February, which grants electricity companies that burn domestic coal preferential access to the wholesale market.
The plan comes in addition to government aid that Spain's coal mines already receive to compete with cheaper foreign imports.
Spain justified the aid on the grounds of energy security. To this end, the EU Electricity Directive allows a member state to impose public service obligations on its electricity generators to produce fuel from domestic sources up to a limit of 15% of national electricity consumption.
The decision comes as a relief for Spanish coal miners, who have been striking over unpaid wages.
But environmentalists have been unconvinced by the security of supply argument. WWF has pointed out that Spain has been a net exporter if electricity for the past six years.
Spain's deal with EU competition authorities states that it will stop the scheme at the end of 2014 at the latest, using the four years to reinforce interconnections with major European electricity markets.
"The Spanish authorities gave a firm commitment that it will under no circumstances be prolonged beyond 31 December 2014," the Commission said.
The EU executive said the decision is consistent with a draft Coal Regulation the EU is currently debating, which would phase out operating subsidies to coal mines by 1 October 2014. It said the indigenous coal burned by the power plants under the public service obligations must come from mines that follow the new regulation.
Tony Long, director of WWF's European policy office, warned that the decision jeopardises the credibility of the EU's environmental and energy pledges.
"Pollution will increase, consumers will pay more, cleaner investments will be delayed, and other energy providers in Spain will be disadvantaged," he said. "Commitments to end this scheme after four years must come with a cast-iron guarantee if the EU is to salvage any face from this sad affair."