EU plans ‘transition subsidies’ for coal sector

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The European Commission is planning to prolong subsidies for the coal industry until 2023, in an effort to help the sector's transition to cleaner energy and the eventual closure of mines, EURACTIV has learnt.

EU Competition Commissioner Joaquín Almunia proposes to  establish a "transitory regime," which would allow the hard coal industry to receive closure aid and recover costs. 

The aid would be granted as part of a plan to close the mines definitively by 2023.

The proposed derogation would be the seventh in a long history of European coal subsidies, which have been justified by concerns over the security of energy supply. Countries like Poland, for instance, are dependent on coal for more than 95% of their electricity needs.

Now for the first time, the EU executive notes that "the small contribution of subsidised coal to the overall energy mix no longer justifies the maintenance of such subsidies".

Europe's coal industry is heavily concentrated in certain regions. Germany and Spain give out the majority of subsidies under the regulation. Hungary, Poland, Romania and Slovakia make use of them too, but to a far lesser extent.

The Commission reckons that immediate mine closures due to a sudden end to subsidies could result in up to 100,000 jobs lost, flooding regional labour markets with redundant mine workers who risk becoming long-term unemployed.

The EU executive expects coal subsidies to reach €3.2bn in 2020. The figures have angered environmentalists, who argue that the money could be better spent on developing renewable energies or other clean technologies and are in stark contrast to the EU's climate goals.

Bad timing ahead of G20

The leaked document comes at a bad time as European Commission President José Manuel Barroso is flying to attend the G20 meeting in Toronto, where fossil fuel subsidies are on the agenda.

G20 leaders meeting last year in Pittsburgh signed up to phasing out inefficient fossil fuel subsidies over the medium term. They stated that such subsidies "encourage wasteful consumption, distort markets, impede investment in clean energy sources and undermine efforts to deal with climate change".

Canada, which is hosting the new round of talks, has promoted fossil fuel subsidy reform at G20 level and is expected to raise the topic again in Toronto.

The EU's plans to prolong subsidies appear to be in contradiction with a letter sent to other G20 leaders, EU President Herman van Rompuy and Barroso, reiterating the EU's support for "the process to rationalise inefficient fossil fuel subsidies".

Swift adoption expected

A special meeting of Commission cabinet chiefs is scheduled for next Thursday and if there are no changes, the regulation could be published on 6 July.  

"Some in the Commission think that it should retain its lead competence in controlling the state aids. We think that must certainly be considered," said Mark Johnston of environmental group WWF.

Indeed, one alternative to a regulation endorsed by member states could be for the EU executive to decide each state aid case individually from 2011 onwards. This might find favour with Commission departments that do not like fossil fuel subsidies, as it would allow them to maintain tighter control of the process instead of running the risk of national capitals making their own additions. Poland, for instance, is keen to allow investment aid under the new regulation.

Germany already has a national plan to close all its hard coal mines by 2018, unlike Spain, which has no such plans. Under a Commission-led approach, they would have to negotiate subsidies individually with the EU executive.

Europe's coal industry has been declining since the 1950s, as prices for imported coal have decreased and local extraction costs have increased.

With the expiry of the European Coal and Steel Community treaty in 2002, the EU adopted a regulation on state aid to the coal industry in order "to allow for the continued restructuring of the coal industry".

The current coal regulation, which allows sector-specific state subsidies for hard coal, is set to expire at the end of the year. In the absence of a new framework, the industry would be subject to general EU state aid rules, which would significantly reduce its options for state aid. The general provisions already apply to other types of coal such as lignite.

  • 26-27 June: G20 summit in Toronto.
  • 1 July: Special meeting of cabinet chiefs.
  • 6 July: Proposal could be published.

 

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