EU coal sector facing steep production decline this year

By Eugene Gerden

The volume of coal mining in the European Union and the United Kingdom may significantly decline this year, due to the ever tightening environmental regulations in Europe and the ever growing pressure from renewables, according to recent statements made by some leading EU coal mining companies and local mining analysts.

This situation reflects the trend of some leading Western European economies rejecting coal and shifting to cleaner energy sources.

An example of this trend is the UK, whose government recently announced plans to close at least seven large coal-fired power plants during the period 2022-2023. In the meantime, according to some EU media reports, the UK is not the only European country which is considering a significant cut in coal usage in the near future, notably Italy.

The COVID-19 pandemic and its economic consequences has already resulted in a significant decline of coal demand in the EU, forcing many  leading local producers to cut their production and reduce wages to personnel by 20-25%.

In addition, some of them have already called on their national governments as well as the European Commission – the EU’s executive body – to provide needed support this year, with the aim of avoiding massive lay-offs of workers and the prevention of possible social unrest.

Perhaps the most complex situation is currently observed in Poland, a country which has been historically considered as one of the centres of coal production in Europe and which its coal sector employs more than 80,000 people.

According to a recent Reuters report, due to the current complex environment,  PGG, Poland’s largest coal producer, is considering conducting restructuring its business that may result in the closure of its Ruda and Wujek coal mines.

Currently, there are only 12 large-scale coal mines in Poland, which is almost two to three times lower than in the 1980s when the country accounted for 19% in the global coal production. At that time the annual volume of exports of Polish coal were estimated at 40-45 million tonnes, with the annual output of more than 200 million tonnes.

In general, the European coal industry went through several serious crises during the 20th century, each of which resulted in restructuring and the reduction of output and the terminating of workers employed in the sector. Those crises have also led to the almost complete suspension of coal mining a number of European countries that were previously considered as centres of coal production in Europe – for example, the Dutch region of Limburg.

Still, despite this, active coal mining is currently ongoing in 41 regions of 12 countries of the EU (including ten regions in the United Kingdom). However, the possible closure of local coal-fired power plants – their main customers – will put to an end to the coal industry in these regions.

In addition to Poland, the list of major coal-producing nations in Europe is currently comprised of Czech Republic, Germany, the UK and Spain to a lesser extent.

In the majority of these nations, the volume of coal production has significantly declined in recent years, which was also due to the current policy implemented by the European Commission that involved the provision of huge financial compensation to European governments and their major coal producers to convince them to close their coal mines.

Prior to the 2010s, the coal mining sector of many EU states received subsidies in both directly and indirectly from their national governments. An example is Spain, where coal mining has been directly and indirectly subsidized by the state in recent decades. Most subsidies are allocated in the form of direct payments to coal-fired power plants for the maintenance of capacity, as well as the provision of obligations to purchase a minimum share of coal from Spanish mines.

Such practices have repeatedly criticized by the European Commission and have become the subject of numerous litigations. In 2016, Spain received the approval of the EU state subsidy program for its remaining 26 coal mines in the Castile and Leon regions, as well as Asturias and Aragon in the amount of 2.13 billion euros.

The condition of this program was closure of mines by the end of 2018. Otherwise, companies must return the subsidies received. As a result, as of early 2020, there was only one small Escondida mine left in Spain in the region of Castile and Leon, the owner of which had entered into an open confrontation with the government. Over the next ten years, the Spanish government with the financial support of the European Commission will invest more than 250 million euros in the rehabilitation of coal regions. The dismissed mine workers will be given the opportunity to retire early, as well as other social benefits and retraining programs.

Practically, the same processes are currently seen in coal sectors of other major EU major nations.

For example, several months ago the last coal mine was closed in the Ruhr area in Germany and the Italian island of Sardinia. The current EU coal mining policy also resulted in the closure of the only mine in Slovenia, three coal mines in Romania, and the Paskov mine in the Moravian-Silesian Region in the Czech Republic, where only two mines currently remain in operation.