Comtemplating a coal plot

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The European Commission's energy directorate has proposed a radical new energy structure based on the concept of a "primary energy base" for coal and renewables. The idea is to ensure security of energy supply in the European Union. The aim appears admirable. Some 50% of the EU's energy requirements are imported and the figure is set to increase to almost 70% by 2030 if current trends continue. The proposal even insists that Europe's domestic coal industry should continue to be phased out along with its massive subsidies -- and replaced with renewable energies (page 31).

If this all sounds too good to be true, then wait for the next bit: coal subsidies, says the proposal, should be transferred to renewables. Over the dead body of which German coal mining union, pray? The EU moves in mysterious ways, but the false note sounded here smells not so much of mystery as a dastardly plot, especially when the whole idea has come to light in a document with the primary aim of securing coal subsidies up to at least 2010. Fuelling the suspicions of a plot, further investigation reveals that the whole idea of a "primary energy base" did not come from the commission, it originated in the coal mining heartland of Germany. First aired a year ago by Wolfgang Clement, premier of North Rhine Westfalia, it was thereafter borne to Brussels by German economy minister Werner Müller. The Germans were only suggesting, however, that coal and renewables should be linked in European energy policy. The transfer of subsidies from coal to wind idea appears to be the European Commission's own.

European Union policy, however, is to remove state subsidies from energy. The EU members want an energy market run on commercial lines, where customers pay what it costs to have a secure and sustainable energy supply. For this reason, wind power in Europe, unlike coal, does not receive large amounts of cash from government. Instead, wind is allowed to charge customers a premium for its product, whether in the form of a fixed wind tariff in Germany, a production incentive payment in Spain, or through green credit trading as being introduced in Denmark, Sweden, the Netherlands and the UK. In countries with green credit trade, the premium reflects the environmental value of wind power. For the EC to now propose that wind power be subsidised is not only counter to its own policy, but also makes a mockery of the efforts of governments to devise market based support mechanisms for renewables, such as green credit trading.

Figuring out what the EC is up to has never been easy. At best, it could have some specific intentions of where it wants coal's subsidies to go. Which of the renewable energy technologies are to benefit is not made clear, but perhaps the commission has offshore wind power in mind. In Germany in particular (where EUR 4.6 billion out of the EU's EUR 6.9 billion in coal aid was doled out last year), the offshore market needs a hefty kick-start (page 44). Giving it a massive subsidy injection from coal subsidies could be the germ of a good idea. Perhaps, though, the EC is simply giving an indication of what it has in mind for its broad review of the legal and physical energy landscape, due in 2002. If so, we could be witnessing the start to a more holistic approach to energy supply, a hope expressed by the European Wind Energy Association's Vicky Pollard.

At worst, the proposal appears to be an attempt to bend over backwards to allow Germany to retain its energy market subsidies, which are mainly for domestic coal, for far longer than was envisaged. The European Coal and Steel Treaty that provides the framework for coal aid expires in July 2002. If Europe's domestic coal industry is not to collapse, it needs subsidies, as the EC makes patently clear. And here the plot is revealed. Linking those subsidies inextricably with support for renewable energy looks like a convenient smokescreen behind which coal subsidies continue for ever and a day.

Coal, not wind, is the subsidy invalid

The European wind lobby has long argued that if all energy subsidies are removed then wind needs no subsidies. In other words, give wind a level playing field and let the game proceed under clear and fair rules. Brussels, however, now seems to want to make wind power a permanent subsidy invalid, just like coal, in a primary energy base. Gone is the goal of structuring a market which recognises wind's environmental value. Given that cheap unsubsidised coal from abroad will be coming into the market to replace Europe's domestic production, any failure to get market mechanisms in place which reflect environmental value is potentially disastrous for renewable energy.

The simple solution is a CO2 tax on fossil fuels. But as long as some domestic coal (and German CHP) receives state aid, the inconsistency of giving out subsidies with one hand and demanding them back as a tax with the other really is too daft to contemplate. Indeed, the coal dilemma seems to be raising awareness of the dangers of subsidies, even in Germany. In the week that the town of Husum hosts its biannual wind energy trade fair this month, environment minister Jürgen Trittin has a starring role at a conference on carbon emissions trading, including the role of renewables. The Kreditanstalt für Wiederaufbau, the development bank so instrumental in providing the soft loans vital to German wind development, is the host. The sudden interest in carbon trading suggest that serious consideration is now being given to creating an electricity market in Germany which makes consumers pay all the costs of a secure and sustainable supply.

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