Select Committee on European Scrutiny Twenty-Eighth Report





COM(01) 423

Draft Council Regulation on state aid to the coal industry.


Legal base:

Article 87(3)(e) and 89 EC; consultation; qualified majority voting  


Deposited in Parliament:

27 September 2001


Trade and Industry

Basis of consideration:

Minister's letter 6 April 2002

Previous Committee Report:

HC 152-x (2001-02), paragraph 11 (12 December 2001)

To be discussed in Council:

June 2002

Committee's assessment:

Politically important

Committee's decision:

Cleared (decision reported on 12 December 2001), but request to be kept informed.




  7.1  On 12 December we cleared the 2000 annual report on the application of the Community rules for state aid to the coal industry and the European Commission's proposal for a Council Regulation on state aid to the coal industry, to replace the current rules which expire on 23 July 2002.

  7.2  We noted that the annual report on state aid to the coal industry provided a useful overview of the industry and is a valuable source of information. As regards the proposal for new state aid rules for the coal industry, we noted that the Government accepted, albeit reluctantly, that the coal industry in the EU should continue to receive state aid, provided it met "appropriate limiting conditions." We also noted the Government's view that coal subsidies given by other Member States such as Germany and Spain were unlikely to have much effect on the single market and on UK interests generally.

The Minister's letter

  7.3  The Minister of State for Energy and Industry (Mr Brian Wilson) has provided an update on the progress of negotiations on the draft Regulation and provided a copy of the Government's response to its consultation on the proposals.

  7.4  As regards the progress of negotiations, the Minister says that there is widespread support amongst Member States for state aid levels to the coal industry not to exceed their 2001 levels and for a clear reduction over time in the level of such aid. The Minister points out that degressivity requirements have been included in the original text and the four subsequent compromise texts. The Minister adds that the Government wishes to see an end to state aid to the coal industry by 2007, but some aid may be continued beyond that date. The Minister comments:

"We would like to see a clear end date for aid of 2007. The latest version of the regulation that has been discussed in the Energy Working Group provides that no aid for the reduction of activity may be granted beyond 31 December 2007, but allows for 'aid for accessing coal reserves' (essentially operating and investment aid) until 31 December 2010. This timing is consistent with the Commission proposal, although the latter does not include provision for investment aid. There is some support in the Working Group for a 2007 end date for all types of aid, but the German delegation in particular opposes this."

  7.5  The Minister says that there is also widespread support in the Working Group discussions for the Government's view that security of supply arguments do not provide a convincing or appropriate rationale for continued subsidies to the coal industry. Accordingly, the latest draft text gives restructuring of the coal industry as the prime rationale for continued subsidy, mentioning energy security as a factor that must be taken into account rather than as the key concept.

  7.6  The Government has also continued negotiating on other aspects, including a provision that any investment aid that is provided under the new regulation would secure access to economically viable reserves, so it would not be used to cover the losses of unprofitable pits, so it would not reduce domestic coal prices below international supplies.

  7.7  The Minister summarises the responses the Government received as regards its policy of not allowing aid to the coal industry in the UK after 2002 while reluctantly accepting that some limiting and conditional state aid may be provided in the European regime. There were 34 written responses and the degree of support for various aspects of the Government's policy is outlined below:

a cap on aid payments: "respondents were evenly split between those who supported and those who opposed the Government's stance."

clear degressivity of aid payments: "the majority of respondents supported the Government's stance and there were no compelling arguments against."

a different justification for aid: "the majority of respondents argued in favour of the Commission's security of supply justification for indigenous coal production."

The option of investment aid: "there was overwhelming support for the Government's policy of keeping open the possibility of investment aid".

no energy reservation: "there was strong support for an indigenous base of coal production (supported by aid within the terms of the Regulation if appropriate). But this relied on security of supply arguments for domestic coal production.

aid should not undercut coal from third countries: there was general support for this.

  7.8  The Minister mentions some other concerns raised by respondents, including the effect of the accession countries on the working of the regulation and the justification for subsidies at all in the context of a general presumption against subsidies in the EC Treaty.


  7.9  We have previously cleared the draft regulation concerning new rules for granting state aid to the coal industry. In thanking the Minister for his letter updating us on the progress of negotiations, we ask him to continue to keep us informed on the progress of negotiations on the text relating to state aid and on other aspects of the ECSC Treaty.


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