STATE AID TO THE COAL INDUSTRY
Commission report on the application of the Community rules for state aid to the coal industry in 2000.
Draft Council Regulation on state aid to the coal industry.
(b) Article 87(3)(e) and 89 EC; consultation; qualified majority voting
||(a) 15 June 2001
(b) 25 July 2001
|Forwarded to the Council:
||(a) 18 June 2001
(b) 30 July 2001
|Deposited in Parliament:
||(a) 18 July 2001
(b) 27 September 2001
||Trade and Industry|
|Basis of consideration:
||(a) EM of 4 September 2001
(b) EM of 8 October 2001
|Previous Committee Report:
|To be discussed in Council:
||None planned |
11.1 Subsidies are generally incompatible
with the common market for coal and steel established under the
European Coal and Steel Community (ECSC) Treaty. However, the
ECSC Treaty does allow some financial aid to be granted for particular
purposes and the Commission has adopted a series of general decisions
(on the basis of Article 95 of the ECSC Treaty) setting out the
criteria for granting aid to the industry. Commission Decision
3632/93/ECSC of 28 December 1993, which establishes the current
rules on state aid to the coal industry, allows aid if at least
one of the following objectives is met: to make further progress
towards economic viability with the aim of achieving reduction
of aid; to solve social and regional problems created by total
or partial reductions in output; and to help the coal industry
adjust to environmental protection standards. Under the rules,
the Commission also provides an annual report on the application
of Community rules for state aid to the coal industry.
11.2 Document (a) is the 2000 annual report
on the application of the Community rules for state aid to the
coal industry. It provides an overview of the EU's coal industry
in terms of production, employment, demand and trade, and analyses
in more detail coal demand, trade and imports in coal-producing
Member States (France, Germany, Spain, and the UK).
11.3 As regards the UK, the report notes
the "drastic restructuring process, particularly with the
privatisation of the British Coal Corporation in 1994" and
the more recent changes in world coal prices which led to the
introduction of the UK Coal Operating Aid Scheme, covering the
period from 17 April 2000 to 23 July 2002. It records the aid
allocated to each colliery under the scheme and the payments that
other EU countries have made to support their coal industries.
It lists relevant legal disputes, together with appeals against
Commission Decisions which have been considered by the Court of
11.4 The report describes the continuing
downward trend in coal production and employment since 1992. EU
production has declined from 184.8 million tonnes in 1992 to 86.6
million tonnes in 2000. The figures for the UK were 83 million
tonnes in 1992 and 31.2 million tonnes in 2000, and for Germany
72.2 million tonnes in 1992 and 37.3 million tonnes in 2000. Total
EU coal production in 2000 is only 3 million tonnes higher than
the 1992 figure for the UK alone.
11.5 Demand for coal within the EU in 1992
was 288.4 million tonnes compared with an estimated 257 million
tonnes in 2000. Imported coal is gradually replacing Community
coal for environmental as well as economic reasons. This has been
particularly so in Germany, where imports are up 93% since 1992,
compared with 17.4% in the UK. Employment in the EU coal industry
fell by 12,000 to 92,500 in 2000, with the biggest falls being
recorded in Germany (11,000) and Spain (more than 2,000). Further
job losses are expected to be recorded when the figures for 2001
11.6 Document (b) is 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. When
the Industry Council accepted in 1992 a Commission proposal to
maintain the ECSC Treaty until that date, it stressed that coal
and steel should thereafter be treated like any other industrial
product, particularly in respect of competition.
11.7 The document consists of a lengthy
explanatory memorandum, four annexes providing information on
current Community aid and other background information, and a
proposal for a Council Regulation.
11.8 The Commission notes that, owing to
geological constraints, coal produced in Member States cannot
compete with imports from third countries. According to the Commission,
"bulk of the European coal industry is probably
doomed in the very short term when the ECSC Treaty expires on
23 July 2002 unless financial support measures are put in place.
Most of the Community coal production cannot compete with imports
from third countries, and this is unlikely to change. Although
the prospects are less unfavourable in the UK, its coal industry
will remain very fragile."
11.9 According to the Commission, it will
not be possible to keep non-viable mines open unless their contribution
to security of supply is provided at an acceptable cost. The Commission
notes that the Community's coal industry has depended to a large
extent on state aid since the mid 1960s, although there have been
substantial efforts to restructure, modernise and streamline the
industry. The Commission's view is that a minimum coal production
capacity must be maintained in order to keep equipment and expertise
operational. A quantity of subsidised coal production would also
contribute to maintaining the leading role of European coal-mining
and clean combustion technology, which could then be transferred
to major coal-producing regions outside the Union.
11.10 In her Explanatory Memorandum of 8
October 2001, the Parliamentary Under-Secretary of State for Competition,
Consumers and Markets at the Department of Trade and Industry
(Miss Melanie Johnson) sets out the Commission's approach to state
aid for coal:
"[It] foresees the creation of an 'indigenous
primary energy base' combining fossil fuels and renewables
with subsidies gradually transferred from the former to the latter.
However, a primary energy base cannot be maintained at any cost.
Consequently the future aid scheme for coal must include the degression
principle. The strategy proposed by the Commission envisages gradually
phasing out subsidies for the production and consumption of fossil
fuels until 2010. It notes that the comments sent to the Commission
in reaction to the Green Paper on the security of energy supply
are generally very much in favour of maintaining minimum coal
"The memorandum establishes the scope and criteria
of the new aid scheme. It states that the objective of the scheme
is to create a primary energy base for the purpose of securing
energy supplies, and the rules it establishes must also take account
of the social and regional aspects of restructuring the industry."
11.11 The main features of the proposal
are as follows:
- Member States will be free to choose whatever
energy sources they wish to make up their supply;
- subsidised production will be limited to increasing
the security of energy supply and production units that do not
satisfy this condition will be eligible for closure aid until
31 December 2007, with the option of phasing closures over several
- three categories of aid can be considered compatible
with the common market: aid to safeguard resources, which is intended
to cover current production losses, provided (a) there is a cap
on such aid payments and it does not cover all losses, (b) it
does not cause domestic coal prices to fall below prices for third
countries' coal, and (c) it does not distort domestic competition;
aid for the reduction of activity, which in addition to meeting
the above conditions also has an expiry date of 2007; and aid
to cover exceptional costs relating to inherited liabilities;
- amounts of aid will be entered into the profit
and loss accounts of the undertaking as revenue to distinguish
them from turnover, and coal undertakings engaged in other activities
will have to show separate accounts for the latter;
- Member States will be obliged to notify the Commission
of any plans to maintain capacity for security of supply purposes,
and any closure plans;
- present rules, as laid down in the Decision,
will apply until 31 December 2002, but subsidies for production
and consumption of fossel fuels are to be phased out in a "continuous
and significant manner" until the new scheme expires on 31
December 2010; and
- the Commission will review the workings of the
Scheme in 2006 and present to the Council proposals for amending
the provisions of the scheme from 1 January 2008.
The Government's view
11.12 In her Explanatory Memorandum of 8
October 2001, the Minister told us:
"As the proposal currently stands it will potentially
permit Member States to pay significant sums to their domestic
coal industries. Germany, and probably Spain, are likely to wish
to make use of this opportunity. Although the precise level of
aid to be permitted is as yet unclear, if it is set at the levels
of aid approved for each member state for 2001 this would equate
to approximately £55m per annum for the UK. Future UK policy
will be informed by the PIU [Performance Innovation Unit] Energy
Policy Review, but HMG currently has no plans to subsidise the
UK coal industry beyond 2002.
"HMG's wider State aid policy requires that
state aid should be geared towards underpinning economic reform.
Therefore it would be inappropriate for HMG to actively support
continued, open-ended coal aid. However the payment of aid by
other Member States to their coal industries need not in itself
be detrimental to our interests. Almost all domestic production
of coal is consumed locally, with very little intra-EU trade,
and the Commission proposals do not permit subsidy to reduce domestic
prices of delivered coal below international prices. Therefore
some limited coal state aid may be paid without materially distorting
the single market.
"HMG has therefore indicated to the Commission
and Member States that it is prepared to accept reluctantly that
continued State aid to the coal industry be permitted, provided
that this is in the context of appropriate limiting conditions.
These include: a cap on aid payments; a requirement for degressivity
in aid payments; a clear end date of 2007; and rules to prevent
subsidies reducing domestic coal prices below international ones.
"HMG has reservations about the use of security
of supply as the rationale for a future coal aid regime, as the
geopolitical diversity of coal sources is such that the risks
of disruption to supply are minimal. The government is also concerned
that references to an 'indigenous base of primary energy sources'
in the Commission's proposal, could be a precursor to a reservation
of primary energy fuels which would be free of any restrictions
on State aid. This would be strongly opposed as it could fundamentally
undermine energy liberalisation."
11.13 We note that the annual report
on state aid to the coal industry provides a useful overview of
the industry and is a valuable source of information. The document
is descriptive and will have no effect on UK interests.
11.14 As regards the proposal for new
state aid rules for the coal industry, we note that the Government
accepts, albeit reluctantly, that the coal industry in the EU
should continue to receive state aid, provided it meets "appropriate
limiting conditions." We also note the Government's view
that coal subsidies given by other Member States such as Germany
and Spain are unlikely to have much effect on the single market
and on UK interests generally.
11.15 In view of the limited effect the
proposed new state aid rules for coal are likely to have on the
UK, we have decided that the proposal does not warrant a debate.
We clear both documents.