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Frequently Asked Questions – Coal Regulation

Commission Européenne - MEMO/10/348   20/07/2010

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MEMO/10/348

Brussels, 20 July 2010

Frequently Asked Questions – Coal Regulation

Why does the Commission not simply propose a prolongation of the current Coal Regulation?

Such prolongation does not strike with the logic of the proposed Regulation that has been conceived to give Member States a transitory period for phasing out the aid.

The experience with Regulation 1407/2002 has shown that it does not exert sufficient pressure on Member States to restructure their hard coal industry. On the contrary, the Regulation could allow them to simply continue providing production aid to uncompetitive mines without a clear commitment for closure or restructuring. The underlying problem of non-competitiveness would not be solved, but just delayed.

The new proposal does not allow a simple prolongation of aid: the starting point is the aid given in 2010 (which is already less than half of the aid of 2002) and the proposal imposes a strong degressivity. Most importantly, the proposal allows operating aid only in the context of a closure plan (which was not the case of the previous Regulation).

Does the proposal contradict the Commission's commitments to phase out coal subsidies?

The proposal does not contradict the Commission's commitment to phase out coal subsidies. On the contrary, it encourages the closure of uncompetitive mines, by offering a politically and socially acceptable way to do so.

Doesn't an immediate closure cost less than a gradual closure?

A gradual closure does not necessarily cost more than an immediate closure. The impact assessment has shown that financial resources would only be freed up in the longer term, when job losses are gradually absorbed by the labour market and when exceptional costs linked to mine closures are reduced. A great army of long-term unemployed following sudden closure could soak up all the resources in terms of unemployment benefits and labour market policies.

More importantly, while the closing of a mine stops any emissions from the mining activity, the overall impact on greenhouse gas emissions depends on the emissions from coal mining in third countries and from the transport of the coal to the EU. Only a gradual switch from coal to other energy sources for the electricity production, in parallel to the closure of domestic coal mines, would have a more certain impact on greenhouse gas emissions.

What is NEW in the proposal prepared by the Commission for a Council Regulation compared to regulation 1407/2002?

The Commission's proposal represents a clear break with the previous Coal Regulation: from now on, operating aid will only be allowed in the context of a definite closure plan.

A target date is set on 1/10/2014 for the closure of the mines with a clear degressivity of at least 33 % per fifteen-month, and aid for any year cannot be higher than in 2010

If the mine was not closed at the planned target date, the aid would have to be recovered. In any case, such closure plan would not allow the concerned mines to remain open beyond 1 October 2014.1

The new proposal does include neither provisions on investment aid nor provisions on production aid for accessing coal reserves. The provisions for aid to exceptional costs are identical in both texts.

What is the experience acquired with Regulation 1407/2002?

Indeed, the experience acquired with Regulation 1407/2002 has shown that the most successful closure plans are those that combine a gradual closure with the redeployment of the work force. The main purpose is cushioning the social impact, by building on the experience of those countries that have already closed their mines.

With the 1407/2002 Regulation in place, over €26 billion of State aid to the hard coal sector has been approved between 2003 and 2008. In addition, a number of forward plans for aid in the years to 2010 and after have already been made. However, the total amount of subsidies to EU hard coal follows a downward trend: the yearly amounts have been halved between 2003 and 2008, from €6.4 billion in 2003 to €3.2 billion in 2008.

A large part of the financing was directed to environmental clean-up measures or early retirement schemes – so called exceptional costs. When taking into account aid to cover production losses only, subsidised coal serves for only 1.4 % of the electricity production in the EU production aid.

The production and consumptions of hard coal in the EU has reduced steadily over the implementing period of Regulation 1407/2002. With the new regulation, this trend will continue gradually until no aid at all is given to any uncompetitive hard coal mine in 2014 .

Why not closing the mines on 31.12.2010?

The consequences of the closure of a mine are technical, social and environmental.

Technical reasons:

The closing of a mine necessitates a series of measures to rehabilitate the mining site, such as removing the mining equipment from the mine, cleaning-up the site, underground safety work, removal of waste water, etc. The security and health standards imposed in Member States for such an operation are very high.

In case of an immediate closure of mines at the end of 2010, there is a risk that necessary preparatory work for the close-down may not have been undertaken in time, thereby increasing the cost of rehabilitation measures following the closure. A specific spatial distribution of the underground coal extraction needs to be planned years in advance to avoid ground level damages (in extreme cases this can lead to earthquakes).

Social impact:

While the jobs lost usually have a limited impact on EU-wide and national unemployment figures, their impact on specific coal-mining regions may be very significant, especially in Germany, Spain and Romania. The immediate closure of the uncompetitive mines would overburden the regional labour markets with a flood of redundant mine workers, which cannot rapidly enough be re-employed in other industries and therefore risk becoming long-term unemployed.

Taking as simple rule of thumb that for each coal job a further 1.3 jobs would be lost in the regions concerned, the unemployment rate on the regional unemployment rates (at NUTS2 level) could increase by up to 2.5 percentage points. The most affected regions would be Münster and Saarland in Germany, Asturias in Spain and Vest in Romania.

As regards environmental protection, the situation would be worse without a phasing out.

The reduction of the production of indigenous coal will most likely be replaced by imported coal, mainly from third countries as most coal-producing Member States consume more coal than they produce. Only the Czech Republic and Poland export a part of their production, but it is uncertain whether they would be able to increase exports.

While the closing of a mine stops any emissions from the mining activity, the overall impact on greenhouse gas emissions depends on the emissions from coal mining in third countries and from the transport of the coal to the EU. The impact on the overall energy mix of the EU is negligible, at least in the short to medium term. Only a gradual switch from coal to other energy sources for the electricity production, in parallel to the closure of domestic coal mines, would have a more certain impact on greenhouse gas emissions.

In addition, in an immediate closure, it would be more difficult to retain the know-how needed for the rehabilitation and cleaning-up of the mining site, as the qualified workforce would have left.

What would ensure that the mines are definitely closed at the end of the target period?

A monitoring of the closure plans will be carried out by the Commission.

Member States which intend to grant closure aid shall notify a closure plan for the production units concerned to the Commission. The plan shall contain in particular for each production unit; the real or estimated production costs per coal year and the estimated amount of closure aid per coal year.

Member States shall notify every year all the aid which they intend to grant to the coal industry during a coal year. They shall submit to the Commission all details relevant to the calculation of the foreseeable production costs and their relationship to the closure plans notified to the Commission.

The 4-year period could only be fully used for closure plans notified in 2010. If, for example, the plans were notified in 2012, the concerned mines would still need to be closed by 1 October 2014 , reducing the maximum duration of the plan to 2 years (and increasing the pace of degressivity).

If the mine was not closed at the planned target date, the aid would have to be recovered. In any case, such closure plan would not allow the concerned mines to remain open beyond 1 October 2014 .

1 :

The 4 -year period could only be fully used for closure plans notified in 2010. If, for example, the plan were notified in 2012, the concerned mines would still need to be closed by 1 October 2014, reducing the maximum duration of the plan to 2 years (and increasing the pace of degressivity).


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