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EU enlargement is coming – an opportunity or a challenge for the mining industry?

In October 2003, under the Italian presidency, the draft European Constitution that was submitted by the European Convention is to be adopted by the governments of the member states – and this will take place before May 204, when the EU will experience the biggest enlargement in its history.

Wolfgang Reichel, Chief Executive of the German Hard Coal Association, speaking at a workshops debate at Prosper-Haniel colliery.

Unlike previous versions of the European treaty this EU Constitution will contain a chapter on energy: the EU is acquiring energy-related powers and security of energy supply is to be given constitutional status. While energy security is still ranked second to environmental issues on the agenda, it is possible here to draw a parallel with the time the first European community – the ECSC – was created. At that time European coal, and with an eye to the needs of the European steel industry German coking coal in particular, was to form the basis for the energy supply security that was so essential for European reconstruction.

Clearly much has changed since those days: economic growth, prosperity, technical progress and an integration of the current fifteen member states that far exceeds the remit of the coal and steel Community – such things have radically altered the face of our economies and social structures.

Yet even today the question of security of energy supply for the decades ahead has become “a major challenge for international governments”, according to the conclusion drawn in a recent politico-scientific study by Frank Umbach of the German Council on Foreign Relations entitled ‘Global energy security – a strategic challenge for European and German foreign policy’. The author quotes German Foreign Minister Fischer who not only recognises the importance of environmental challenges but also believes that "the energy question (is) .... the decisive issue" of international politics in the twenty-first century. He states that this century will see “serious conflicts for the distribution of energy resources“.

In its Green Paper on security of energy supply, which was published at the end of 2000, the European Commission initiated a strategy debate that in Germany, it has to be said, has hardly been conducted in the public arena, unless at a provincial level where absurdly strange notions have occasionally been put forward concerning, for example, the short and medium-term potential of renewable energies.

The European Green Paper describes coal and nuclear power as “energies that have fallen out of favour”. It remains to be seen whether, in view of the “decarbonisation” of energy supply being sought by some Commission departments, this is also meant as a self-criticism. While the document does indeed acknowledge the past achievements of the coal industry, the focus of the Commission’s current proposals is directed towards controlling demand. The problem of obtaining future energy supplies is expounded but is left for the most part an open issue, apart from the target of a twofold increase in renewables usage. The risks associated with our high and growing energy dependence are quite clearly perceived. The question surrounding the future of the European coal industry is evaded, or at least left to the discretion of the member states. Throughout the EU, coal mining and the industries connected with it, whether as customers or suppliers, have been under pressure for many years.

In Germany reunification resulted in a structural shake-out of the lignite industry, a process that is now stabilised. In Spain and in Germany coal mining is to continue its process of restructuring, with no end-point in sight. Keyword ‘coal base’. France is currently on the point of closing its last coal mines. The future of the UK’s privatised mining industry is uncertain, though prospects appear bleak for the period after 2010. In the new accession countries restructuring has been under way since 1990 and here the industry will face major challenges. Mineworkers fear for their jobs. The media has recently reported demonstrations and violent clashes with miners in Warsaw.

We may therefore ask how the European coal industry will find the courage to call for a secure future for coal in Europe and for a chance to show its capabilities?

There are two answers to this question. First let us examine the facts of the situation: 

1. Coal is a key pillar of European energy supply. 

2. EU enlargement has meant that in spite of restructuring coal’s importance in Europe is set to increase, and this will not be a passing phase. 

3. Coal is the most important and largest indigenous energy reserve in Europe. European oil and gas reserves will soon be exhausted. 

4. Global coal utilisation will increase significantly over the next 20 to 30 years. 

On the other hand, coal in Europe – unlike the other major consumer regions – is not exactly a best-seller but is generally dependent on the political and regulatory framework.

Up to now coal’s role in the EU has obviously been heavily regulated, but it is not fundamentally threatened.

The fact that coal and its problems will assume growing importance through EU enlargement may in part explain the “media spectacle” that has been organised in recent years, especially by a number of environmentalist politicians who are occasionally supported by lobbyists for other forms of energy.

A similar motive may be behind the recent pressure being applied to rushing-in various energy-policy and environmental measures. This applies in particular to the new European emissions trading directive to be introduced this year by the EU-15 at the insistence of the environmental lobby, that is to say prior to enlargement; and indeed this new regulation has in fact now been adopted and will enter into force in 2005. It is difficult to imagine that the Directive in its current form would also be accepted by the EU-25, for studies carried out by the European Commission have clearly indicated that one of the anticipated results of the proposed emissions trading system will be that coal is gradually supplanted in Europe as a power-station fuel.

All things being equal the winners should be – and ultimately will be – gas, renewables and also nuclear power. This also applies on an equivalent basis to the power generation structures in the accession countries.

Emissions trading is being sold as a market-oriented and cost-effective instrument for achieving emission reduction targets. It remains to be seen whether this is true, or whether it is merely a bureaucratic monster. What ultimately matters here is the national transposition process, which is only now beginning to take shape. What is important, and at the same time what offers some opportunities for the coal industry, is the intention to link this system to the other flexible Kyoto instruments, namely JI und CDM. And what is certain, however, is that the environmental targets will be enforced by ‘penalising’ CO₂ emissions and therefore primarily affecting coal at the expense of other energy and environmental objectives.

Going from my own experience I harbour serious doubts as to whether people sufficiently realise what is in store for European industry as a result of the emissions trading scheme and indeed many other EU environmental regulations too. I believe that our environmental policy will trigger conflict for the enlargement process, especially by way of the social and structural problems it will create.

As a long-standing member of the ECSC advisory committee I personally find it very regretful, especially in view of European enlargement, that the ECSC was allowed to expire last year practically without a replacement. Given the size of the coal and steel industries of central and eastern Europe, and the problems they are currently facing, it would have been entirely appropriate to put in place a sectoral system as was done on a European basis under the ECSC. But the various governments saw things differently.

This means, for example, that we no longer have any special Community-funded social and restructuring measures of a sectoral nature for the coal industry or for the mining regions.

Coal and steel from the new accession countries will receive no special assistance from the EU for structural change but will have to make do with the other institutional heirlooms left over in today’s EU from the old ECSC.

The most obvious of these is the specific European Coal and Steel Research Fund, which was set up from the residual assets of the ECSC.

The new members will also be able to participate in the Fund’s research programmes provided that they have paid into the assets sharing scheme, in other words a kind of entry fee. To my knowledge this has been laid down in the Treaty of Accession.

Another option is the European Economic and Social Committee and its Advisory Commission for Industrial Change, which was created as a follow-up body to the ECSC Advisory Committee. I know in my own mind how difficult or even impossible it is to raise the concerns of the coal industry in such a forum, and things are no easier for the steel sector.

The Council Regulation on state aid to the coal industry, which took effect in 2002 under the terms of the EC Treaty, can also be regarded as a further ECSC follow-up measure. This Regulation also applies to the coal industries of the new accession countries.

As a result, state aid to coal mining in these countries has to be declared on a regular basis to the European Commission, which then examines and if appropriate approves each case using the criteria laid down in the Regulation.

This will mean adapting the subsidy schemes of some of the new member states, including the restructuring plans for the coal mining industry. In practical terms this will leave many unanswered questions. The accession countries will then have to meet the same targets as those currently applying to coal-industry aid in the EU-15. In other words:

- to alleviate the social and regional consequences of further restructuring

- and to maintain a minimum quantity of indigenous coal production to safeguard energy supplies.

Given this scenario the coal industry, mining unions and coal countries of the enlarged EU must not allow themselves to be divided. They need instead to pull together to ensure that workable framework conditions are kept in place in this sector.

This is the experience of the European Coal and Steel Union and it is something that has already been achieved at an association level. EURACOAL, the current Brussels-based Association for European Coal and Lignite, has already integrated important partners from both the accession and the new applicant countries. After several difficult years we have now also managed to get the UK coal producers back on board and the European coal importers are also united with us under one roof. This means that the European coal sector is able to pool its interests and speak with a single voice. 

As already mentioned, according to the terms of the draft European Constitutional Treaty security of energy supply is to be a future common objective of the European Community. It remains to be seen what this and the other Treaty objectives will mean in terms of energy-policy responsibilities. What ever happens, fuel choice and the energy supply structure will continue to be left to the member states. Coal policy will therefore remain primarily a national obligation, though with the commitment to contribute towards the general EU aim of security of supply.

From this viewpoint it is impossible to conclude, as far as German coal policy in an enlarged Europe is concerned, that mining here at home should be allowed to disappear. Put in more positive terms: there will be a future for the German coal industry beyond 2012. The route ahead seems to have been for the most part mapped-out by the current European and national resolutions and will not be fundamentally altered by the enlargement process.

Generally speaking, the EU coal industry at the moment of European enlargement seems to be standing at the crossroads, especially with the introduction of the emissions trading scheme.

For the future it is absolutely essential for coal to be able to regain its proper place in the European energy make-up. This means taking into account the contribution that solid fuel can make towards security of energy supply and to a balanced energy mix. Coal is vital for meeting our energy requirements and indigenous coal can help solve the current EU problem of growing import dependence.

Source:
Discussion paper
by W. Reichel of GVSt
- Workshops Talk,
18 September 2003,
Prosper-Haniel colliery, Bottrop