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IP/10/984

Brussels, 20 July 2010

State aid: Commission proposes Council Regulation on State aid to close uncompetitive coal mines

The European Commission has approved a proposal for a Council Regulation on State aid to facilitate the closure of loss-making hard coal mines in the EU by 1st October 2014. Any further operating aid to the sector will be conditional on the presentation of a closure plan for the loss-making mines. The Member States concerned will be able to assist with the counselling and training of the affected workers and ensuring that the mining sites are properly cleaned up and safe.

"The aim of the proposal is to ensure a definitive closure of uncompetitive mines by 1st October 2014. There should be no doubt about this. Companies need to be viable without subsidies. This is a question of fairness vis à vis competitors that operate without state aid. This is also in the interest of taxpayers and of government finances that are considerably constrained. The Commission will only allow operating aid to mining companies that have a closure plan and the subsidies should go increasingly towards supporting the social and environmental costs of doing so," said Joaquín Almunia, Commission Vice President in charge of Competition policy. He added: "Renewable, clean energy is the way to go, but we cannot ignore the dire regional economic and social consequences that would follow a sudden closure of the loss-making mines at this time of low or no growth and high unemployment".

The European Commission has adopted a proposal for a Council Regulation that would allow those Member States concerned to grant operating aid to coal mines only in the context of a definitive closure plan, the implementation of which would be strictly monitored. Under the proposed Regulation, the operating subsidies would need to be clearly digressive over time, with a reduction of at least 33% per fifteen-month period and, in case the loss-making mine would not have been closed by 1st October 2014, the beneficiary would have to pay them back to the State. Any closure aid would be conditional on the presentation by the Member State a plan of appropriate measures, for example in the field of energy efficiency, renewable energy or carbon capture and storage, to mitigate the negative environmental impact of aid to coal.

The proposed Regulation is addressed to the Council of EU Ministers.

The aim of the proposal is to end operating subsidies to uncompetitive mines, very much as has been done for the shipbuilding and steel sectors. Instead, any state subsidies should increasingly go towards the financing of the social and environmental consequences of the closure of those loss-making mines. The proposed Regulation concerns hard coal. Lignite is a different form of coal, which cannot receive operating subsidies

Hard coal production in the EU is small compared with demand and falling (147 million tonnes in 2008 or 2.5% of world production). In fact, the EU depends on imports for more than half of its use in coal fired power stations.

Total aid to the hard coal sector has been halved to €2.9 billion in 2008 from €6.4 billion in 2003. The fall in production aid has fallen by 62% to 1,288 million of the total in the same period, as a higher and increasing proportion is being directed towards covering the social and environmental costs of mine closures (see table below).

The proposed Regulation would continue to give Member States a common and legal framework to address the costs of counselling and training the workers of loss-making mines for other jobs, the costs of early retirement for those that will leave the active population and the impact on related sectors such as mining technology, geology or environmental technologies. Besides the social costs, there are also the environmental costs involved in the cleaning up of the mining sites, the removal of waste water, underground safety work and other rehabilitation costs

Banning operating aid from the end of 2010, when the current Regulation ends, would have dire social and economic consequences for a number of regions where employment in coal mines remains important, at a time when countries are still mired in recession or only just emerging from it. It could also result in an increase of climate emissions as more coal would need to be transported from outside the EU to make up for the drop in European production.

The sector employs around 100.000 people in Europe: 42,000 in the coal sector itself and over 55.000 in related industries. The mines that rely on operating subsidies are located mostly, but not only, in the Ruhr region, in Germany, in north-west Spain and in the Jiu Valley in Romania. More than 40% of electricity in Germany is produced from coal burning, roughly half of which hard coal. Coal's share of electricity production in Romania is also around 40%, most of which hard coal. In Spain the share is around 25%, also mostly hard coal.

The EU is moving rapidly towards cleaner and renewable energy, an objective in which it is leading the world, for both environmental and security of supply reasons. Renewable energy (hydro power followed by wind, biomass and solar) accounted for 62% of the new electricity generation capacity installed in the EU in 2009, up from 57% in 2008, the recent report published by the European Joint Research Centre showed (see IP/10/886 of 5 July). If the current rates are maintained, approximately 35-40% of the overall electricity consumed in the EU would come from renewable sources, well above the 20% target the EU has set itself. That percentage is 15.4 % and 20.6 % respectively and at present in Germany and Spain.

Background

Council Regulation (EC) N° 1407/2002 of 23 July 2002 on State aid to the coal industry expires on 31 December 2010.

Poland accounts for more than half of the EU hard coal production, while the other half is mainly produced by Germany, the UK, the Czech Republic and Spain. China, the US, India, Australia and Russia are the major producers worldwide, with China producing 2.761 Mt per year (47% of world production), the US 1006 Mt (17%) and Russia 247 Mt (4%). The EU imports 180 Mt of hard coal, mainly from Russia (30%), Colombia (17.8%), South Africa (15.9%) and the US (12.8%).

"The full text of the Commission's proposal is available at:

http://www.acceptance.ec.europa.eu/competition/sectors/energy/coal_regulation_20_07_2010_en.pdf "


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