02 December 2021

NO REASON FOR EUROPEAN COMMISSION TO GREENLIGHT POLISH HARD COAL SUBSIDIES

The Polish government wants to launch a massive rescue mission for the country’s loss-making hard coal mining, with the hope that State aid will keep it on life support until 2049 – one minute to midnight for the EU to become net zero. Such a plan not only contravenes EU competition law, it will severely undermine climate action. However, there is a catch: the European Commission needs to approve the proposed Polish State aid scheme, and has no reason to do so. 

With another year ending, Polish hard coal is on the verge of bankruptcy. Again. The biggest coal producer (PGG) is calling for State aid to start in 2022, as the company’s financial loss in 2021 exceeded 200 million EUR already last October, despite 200 million EUR Covid-rescue-loan issued in 2020. The government response to PGG’s demand is the proposition of yet another lifeline for the industry: a massive state aid scheme, estimated at 3 billion PLN (650 million EUR) per year to finance coal production and the debt of mining companies, until the coal phase-out set for 2049.

Just a few months ago Polish authorities pre-notified the European Commission with its intention, and now it eagerly await the answer as the scheme cannot go without the approval of Brussels. Such financial lifelines are designed to send reassuring signals to the coal industry that it can continue business as usual, despite business having already changed forever with renewable energy routinely outperforming it globally.

The Commission’s Competition arm remains silent, while Executive Vice President Frans Timmermans, according to informal reporting, tells union leaders that subsidising coal production will not be possible.  Meanwhile, Piotr Pyzik, the new deputy minister in charge of the case, declared on 24 November that “he expects a green light from the Commission for further works on the program (…) during the next bilateral meeting planned for 2 December”. He added that  “the approval … may be decisive for our economy, and certainly for the mining industry”. These promises are repeated by trade unions in the country, who are aware that the informal coal exit deal they agreed on relies on this against-all-odds aid.

The Commission has a responsibility to take a clear stance against further subsidies for the coal sector as they committed to align the Competition Policy with the European Green Deal. This will give the right signal for a shift towards climate neutrality, and stop false expectations being built up.

Poland also pre-notified the Commission for a smaller State aid scheme, on top of the big chunk for coal production, to cover the cost of unprofitable mine closures. The Commission’s clarity is again very crucial because previously they had allowed Member States to cover these costs, which should be borne by the companies, with public money under the condition that the mines would close by 2018 [1].

According to publicly accessible information, the Polish government wants  to extend this 2018 deadline to apply to mines set to close by 2023. If this attempt goes through the Commission, it would be a big favour for Poland, as currently all mines in the EU which close after 2018 should cover closure costs on market terms and since 2018 no hard coal mine has been closed in Poland, despite the fact that at least two of them are continuously uncompetitive.

This underlines a basic reality: the Polish government is looking for short-term solutions to address the expected closure cost problem, but it has no long-term phase out plan that is compatible with climate targets. A 2049 hard coal exit clearly isn’t, when the lion’s share of emissions reductions have to happen this decade.

Continuing to make ambiguous announcements that it will subsidise coal production in the next 28 years, when it may have no legal or political way to do so, is not only unrealistic, it unfairly creates false hope for workers and coal communities, while distorting markets that badly need certainty.

There is no escaping the reality that we are in the endgame for coal in the EU. More than half of all plants are now either closed, or have 2030 closure dates at the latest, and  almost all European countries are accelerating their coal phase outs. Romania (2030-32), Germany (now aiming for 2030 instead of 2038), and Portugal (coal free as of November) have all brought their coal phase outs forward.

For Poland, the end is coming as well, whether politicians want to admit it or not. A recent study shows that in the 2049 scenario domestic hard coal supplies would exceed demand from the heat and power sectors by 2025, causing 19 million tonnes of surplus coal yearly by 2035. The local power and industry sectors would not be interested in using it, and selling it to EU countries would be a challenge as they decarbonise much faster.

Moreover, currently the EU is setting legislation to implement  its 2030 climate target. A rapid and just energy transition is not only needed, but also an imperative in all Member States to deliver for the EU’s  Paris Agreement commitment. To achieve the 1.5C objective, the EU must actually overshoot its current emissions reduction target and achieve 65% of reductions by 2030. This, combined with ETS prices exceeding 72 EUR/tonne [2] should send a clear signal to the Polish government that a  Paris compatible coal phase out date (2030 the latest) and implementing a timely transition towards renewable energy sources is needed before it is too late.

The Commission must in no way approve State aid for hard coal production. This would be against its mandate to avoid competition distortions, and it would starkly contradict its flagship European Green Deal initiative and its climate neutrality, zero pollution and just transition objectives. There is no evidence the Commission will approve Poland’s plan yet, but until it puts an end to speculation, politicians will continue giving false hope to hard coal miners, and a healthy discussion about Poland’s timely exit from coal cannot truly start.

Author
Marta Anczewska
Energy Policy Coordinator, CAN Europe

Notes

See this open briefing to read about detailed concerns from legal, economic and climate point of view and why the 2049 coal exit date is unrealistic.

[1] In Poland this legislation was used a lot: only in the period 2015-2018 fifteen of such hard coal mines were closed using the legal basis of the 2010 Council decision, which resulted with employment decreasing by almost 12 thousand workers. In 2019 three mines belonging to PGG were unprofitable, two of them kept that status in 2020.

[2]  https://www.theice.com/index, access on 29.11.2021