Radical EU proposal for energy strategy -- Coal subsidies to renewables

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Renewable energy in the European Union should be part of an "indigenous primary energy base" and qualify for inclusion in the same "package of measures" which keeps the European coal industry alive, suggests the European Commission (EC), the EU's executive arm. Furthermore, energy subsidies should gradually be redistributed to "transfer the aid traditionally granted to the coal industry to renewable sources."

The radical proposals are part of a draft regulation, the main aim of which is to secure subsidies to keep the domestic coal industries of Germany, Spain, France and Britain running from 2003 to 2010. "Without financial support from member states the bulk of the community coal industry would be doomed in the very short term," states the commission, justifying its aid to the industry. The current regulation governing state aid to the EU coal industry expires in July 2002.

The commission argues that ensuring security of supply for EU electricity consumers means guarding against an over dependence on fuel imports -- and that requires maintaining a minimum level of subsidies for coal production. Those subsidies, however, should not be regarded as "an isolated initiative," but as part of an overall strategy which includes promotion of renewables. Coal subsidies, states the commission, must not "imply a departure from the process of restructuring and reduction of activity which has characterised the community coal industry over the last few decades."

Coal subsidies in Germany, Spain, France and Britain together amounted to EUR 6.9 billion in 2000, slightly up on the EUR 6.7 billion in 1999 but considerably less than the EUR 8.3 billion from taxpayers in 1998. The German industry is by far the most greedy, absorbing EUR 4.6 billion in both 1999 and 2000 and EUR 4.8 billion in 1998.

Coal v wind

The EC's proposal implies that as the use of renewable energy grows, subsidised coal production should fall. Coal industry commentators are already complaining. "This means we are facing a permanent debate over how much money should go to coal and how much to renewables," was the initial comment of a miner trade union official.

The European Wind Energy Association also has its doubts. "We welcome support for renewables to make the sector more competitive, but its unfortunate to link this with a dirty technology," says the association's Vicky Pollard. "There is a fundamental difference between the two kinds of aid," she continues. "Coal aid is support for a dying industry. Aid for renewables is an investment aimed at creating a market -- and will gradually be phased out as renewables become competitive."

She highlights a fundamental contradiction of EU energy policy. On the one hand, financial support is provided for electricity generation from (expensive) community coal with no recognition of the full costs to society of coal generation in electricity prices. On the other hand, to make up for this failure of pricing policy to recognise external costs, renewables generation needs assistance to be competitive. Pollard argues that both coal and renewables subsidies can be eliminated if the EU drops its own coal production and includes the external costs of generation using imported coal in power prices.

"The commission's proposal underlines the failure to address community coal subsidies adequately over the last ten years, and the strength of the coal lobby," she says.

Unlimited renewables

Under the EC's proposal, it is up to individual member countries to decide whether they want a "primary energy base." It points out that the 1996 directive on the internal energy market allows countries to give priority to using indigenous primary energy sources up to a limit of "15% of the overall primary energy necessary to produce electricity." Indigenous use of renewable sources of energy, however, is unlimited.

The commission is to publish a complete review of the EU's future energy strategy and "the social and regional aspects for restructuring the coal industry" in 2006. As part of this review it will determine how much coal is needed in the indigenous primary energy base, based on the amount of energy being provided from renewables sources. From that review it will propose changes in coal aid for the period after January 1, 2008.

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