COMMISSION STAFF WORKING DOCUMENT SUMMARY OF THE IMPACT ASSESSMENT   Accompanying document to the   Proposal for a   COUNCIL REGULATION   on State aid to facilitate the closure of uncompetitive coal mines   {COM(2010) 372 final} {SEC(2010) 850}
Date: 2010-07-20
Institutions: European Commission
Subjects: State aid, cessation of trading, coal industry, coal mining, coalmining policy, control of State aid, exploitation of resources, miner, mining operation, safety standard

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EUROPEAN COMMISSION 

Brussels, 20.7.2010 
SEC(2010) 851 

COMMISSION STAFF WORKING DOCUMENT 

SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying document to the 

Proposal for a  

COUNCIL REGULATION  

on State aid to facilitate the closure of uncompetitive coal mines 

{COM(2010) 372 final} 
{SEC(2010) 850} 

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

3. 

4. 

5. 

5.1. 

5.2. 

5.3. 

5.4. 

5.5. 

5.6. 

6. 

Introduction .................................................................................................................. 3 

Problem definition........................................................................................................ 3 

Likely closure of coal mines in several Member States............................................... 3 

The social impact of mine closures.............................................................................. 3 

The environmental impact of mine closures ................................................................ 3 

Marginal impact on the security of energy supply on the EU level............................. 4 

Objectives..................................................................................................................... 4 

Policy options............................................................................................................... 5 

Analysis of impacts ...................................................................................................... 6 

Option 1: the baseline scenario - general State aid rules ............................................. 6 

Option 2: Commission Guidelines ............................................................................... 6 

Option 3: production aid .............................................................................................. 7 

Option 4: aid to cover exceptional cost (inherited liabilities) ...................................... 7 

Option 5: combination of options 3 and 4.................................................................... 7 

Option 6: prolongation by 10 years of the current Coal Regulation ............................ 7 

Comparing the options ................................................................................................. 8 

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1. 

INTRODUCTION 

Aid to the EU hard  coal  industry is  regulated by a  sector-specific  legal  instrument: Council 
Regulation (EC) No 1407/2002 of 23 July 2002 on State aid to the coal industry (the "Coal 
Regulation").  

It  applies  to  hard  coal  only.  Other  types  of  coal,  such  as  ortho-lignite,  are  covered  by  the 
general State aid rules of the EU. 

2. 

PROBLEM DEFINITION 

2.1. 

Likely closure of coal mines in several Member States  

The Coal Regulation expires on 31 December 2010. In the absence of a new legal framework 
allowing for certain specific types of State aid to the coal industry, Member States could grant 
aid only within the limits foreseen by general State aid rules applicable to all sectors.  

Compared  to  the  Coal  Regulation,  the  general  State  aid  rules  significantly  reduce  the 
possibilities  for  State  aid  to  the  coal  industry,  especially  but  not  only  with  regard  to 
production aid. However, according to a recent study1, some Member States are facing very 
high  production  costs  compared  to  current  and  projected  world  market  prices  and  therefore 
have  an  economically  uncompetitive  production  of  hard  coal  today  and  most  likely  in  the 
future: especially Germany, Romania and Spain stand out. But also the coal mining industry 
in Hungary and Slovakia may become uncompetitive. The coal mines of these countries risk 
closure after the expiry of the Coal Regulation. 

2.2. 

The social impact of mine closures  

Under  present  policies,  about  27 000  mine  workers  will  still  be  employed  in  Germany  and 
Spain  in  2010,  but  might  loose  their  jobs  in  the  absence  of  production  aid.  In  Romania, 
Hungary and Slovakia, a further 15 000 mine workers' jobs may be threatened by the end of 
subsidies. When taking into account jobs in related industries, up to 100 000 jobs – 42 000 
jobs  in  the  coal  industry  and  more  than  55 000  jobs  in  related  industries  -  may  be  at 
stake. 

While  the  jobs  lost  usually  have  a  limited  impact  on  EU-wide  and  national  unemployment 
figures, their impact on specific coal-mining regions may be very significant, especially in 
Germany,  Spain  and  Romania.  The  immediate  closure  of  the  uncompetitive  mines  would 
overburden the regional labour markets with a flood of redundant mine workers, which 
cannot rapidly enough be re-employed in other industries and therefore risk becoming long-
term unemployed. 

2.3. 

The environmental impact of mine closures  

A closure of coal mines stops the negative impact on the immediate environment of the 
mines, i.e. the visual and biodiversity impact on the landscape, the impact on ground water 

1 

An evaluation of the needs for State aid to the coal industry, Ecorys, December 2008, study prepared for 
the European Commission, see http://ec.europa.eu/energy/coal/consultations/2009_07_15_en.htm 

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and soil subsidence in underground mining areas and the impact through mining waste. But 
closure  of  mines  also  necessitates  cleaning-up  and  rehabilitation  of  the  mining  sites  and  its 
financing must be ensured. 

With regard to the more global aspect of greenhouse gas emissions, the impact of mine 
closures  is  uncertain.  Although  coal  mining  releases  methane,  a  powerful  greenhouse  gas, 
methane  capture  technologies  are  highly  developed  in  some  coal-mining  Member  States. 
Furthermore,  as  greenhouse  gas  emissions  are  a  global  as  opposed  to  local  problem,  the 
uncertainty  increases  when  the  emissions  from  the  burning  of  the  coal  during  the  energy 
generation are taken into account. 

Indeed,  in  coal-fired  power  stations,  indigenous  coal  will  most  likely  be  replaced  by 
imported coal. It follows that the overall impact on greenhouse gas emissions depends on the 
emissions  from  coal  mining  in  third  countries  and from the transport of the coal to the EU. 
The  impact  on  the  overall  energy  mix  of  the  EU  is  limited,  at  least  in  the  short  to  medium 
term. 

2.4.  Marginal impact on the security of energy supply on the EU level 

During the public consultation carried out in view of this impact assessment, the stakeholders 
of the coal industry have argued that subsidised coal is essential for ensuring the security of 
supply  as  having  coal  mines  in  Europe  increases  the  geographic  diversity  of  the  energy 
sources and reduces the import dependency.  

However,  the  small  contribution  of  subsidised  hard  coal  to  the  overall  EU  energy  mix 
strongly  limits  the  capacity  of  such  subsidies  to  compensate  for  supply  disruptions. 
Subsidised coal serves for only 5.1% of the electricity production in the EU. When taking into 
account  only  the  aid  to  cover  production  losses,  this  figure  is  reduced  to  1.4%  (even  if  this 
figure may be higher for individual Member States). 

In addition, the likelihood of disruptions in the supply of imported hard coal seems to be 
rather limited as the world coal market has shown greater stability than the markets for 
other energy sources. Hard coal can be imported from a diversity of exporting countries. The 
world trade volume in hard coal has been increasing on average by 7% per year since the year 
2000. Strong capacity expansion in several countries, such as Indonesia and Russia, indicates 
that global trade can be expected to continue growing rapidly in the future. In view of the low 
proportion of electricity generated from subsidised coal, it is doubtful whether an additional 
State aid instrument would be useful to address security of supply concerns. 

As for short-term bottlenecks, studies indicate that stock-piling imported coal is more efficient 
to assure security of supply than subsidizing a domestic hard coal production. 

3. 

OBJECTIVES 

The broader, horizontal objectives of the Commission with regard to State aid and to coal can 
be derived from the Strategic Energy Review2 - as endorsed by the European Council  and 

2 

Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European  Social 
and Economic Committee and the Committee of the Regions, Second Strategic Energy Review, An EU 
Energy Security and Solidarity Action Plan, 13.11.2008, COM(2008) 781 final 

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the  Council  of  Ministers  -,  the  State  aid  action  plan3  and  the  Environment  Action 
Programme  2002-20124:  the  Commission  wishes  to  apply  horizontal  State  aid  rules  in  as 
many sectors as possible and with regard to energy policy favours a move towards renewable 
energy sources and an environmentally sustainable use of indigenous energy sources.  

Indefinite  State  support  for  coal  mining  is  not  in  line  with  the  Commission's  broad  policy 
objectives,  especially  when  it  counteracts  efforts  to  raise  competitiveness  or  to  move  to 
renewable energy sources, even if its impact on competition is rather limited5. But at the same 
time,  the  closure  of  uncompetitive  mines  may  have  consequences  on  a  social  and 
environmental level which need to be addressed. 

The  Commission  defines  the  policy  objective  which  the  present  assessment  addresses  as  to 
minimize the possible adverse effects of mine closures that may follow a phasing-out of 
subsidies,  especially  with  regard  to  their  social  and  environmental  aspects,  while 
minimising distortions of competition on the internal market. 

4. 

POLICY OPTIONS 

The following five policy options have been assessed: 

(1) 

Option 1: the baseline scenario 

Under  the  baseline  scenario,  the  Commission  will  not  propose  a  new  sector-specific  legal 
instrument applicable after the expiry of the Coal Regulation. Only general State aid rules will 
apply to the hard coal sector from 2011. 

(2) 

Option 2: Commission Guidelines 

Under option 2, the Commission adopts guidelines based on Article 107(3)(c) TFEU, which 
would  be  similar  to  those  adopted  in  the  shipbuilding  and  steel  sectors  and  would  allow 
Member States to grant aid limited to closure aid in the form of aid to cover payments by coal 
mine  undertakings  to  workers  made  redundant  or  accepting  early  retirement  due  to  mine 
closures, the costs of counselling such workers and the costs of vocational retraining. It may 
also cover costs to finish ongoing contracts (for a maximum of 6 months) or the costs related 
to cancelling such contracts, whatever of both is lower. Moreover, it may cover expenditure 
incurred for the immediate cleaning and rehabilitation of the production sites. 

These Guidelines would expire  at the end of 2013 as  the aid measures  should only concern 
coal mines closing in the context of the expiry of the Coal Regulation. 

(3) 

Option 3: Council Regulation allowing time-limited operating aid (closure aid) 

Under option 3, the Commission would propose a Council Regulation on the basis of Article 
107(3)(e)  TFEU.  The  Regulation  would  allow  Member  States  to  grant  clearly  degressive 

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107 

final, 

COM(2005) 
http://ec.europa.eu/comm/competition/state_aid/others/action_plan/saap_en.pdf . 
Decision  No  1600/2002/EC  if  the  European  Parliament  and  of  the  Council  laying  down  the  Sixth 
Community Environment Action Programme, OJ L242, 10.9.2002. p.1 – see Article 5(2) 
It is one of the conditions of the current Coal Regulation that there is no impact of subsidised coal on 
electricity prices (see Article 4(c) and €  of the Coal Regulation and Annex 3 therein). 

available 

on-line 

under 

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operating aid aimed at covering current production losses as long as it accompanies an orderly 
winding-down  of  activities  in  the  context  of  a  well-defined  mine  closure  plan  (concerning 
only mines already existing today). This would be a gradual phasing-out of operating aid over 
a maximum period of 10 years and at the latest in 2020 and with a degressivity of at least 10% 
per year. 

(4) 

Option 4 : Council Regulation allowing aid to cover exceptional costs (inherited social 
and environmental liabilities) 

Under option 4, the Commission would propose a Council Regulation on the basis of Article 
107(3)(e) TFEU. This Regulation would allow Member States to grant aid for the social and 
environmental costs linked to the closure of coal mines, such as social welfare benefits and 
costs related to the rehabilitation of the former coal mining sites, as defined in the Annex of 
the current Coal Regulation. 

(5) 

Option 5: the combination of options 3 and 4 

Under option 5, the Commission would propose a Council Regulation on the basis of Article 
107(3)(e) TFEU that allows Member States to grant both, closure aid (as in option 3) and aid 
to cover exceptional costs (as in option 4). 

(6) 

Option 6: prolongation by 10 years of the current Coal Regulation 

In line with the favoured option of most stakeholders from the coal sector, under option 6, the 
Commission would propose to the Council to prolong Council Regulation (EC) No 1407/2002 
- as it stands today - by a further 10 years, i.e. till the end of 2020. This would differ from 
option 5 by the following characteristics: 

–  Production aid could be authorized on the basis of Article 5(3) if the operation of 
the  concerned  production  units  forms  part  of  a  plan  for  accessing  coal  reserves; 
hence, there would be no conditionality with regard to the closure of these mines; 

–  Production  aid  would  need  to  be  degressive  so  as  to  result  in  a  significant 

reduction, but no particular rate of reduction would be imposed; 

–  Initial investment aid up to 30% of the total investment cost could be granted. 

5. 

ANALYSIS OF IMPACTS 

5.1. 

Option 1: the baseline scenario - general State aid rules 

The baseline scenario has already been described in section 2. The other options are assessed 
in comparison with this baseline.  

5.2. 

Option 2: Commission Guidelines 

The impact of option 1 is not fundamentally different from option 2. Insofar as Member States 
grant aid as allowed under option 2, it will lead to the same production shortfall and the same 
number of jobs lost. The difference lies in the possibility given by option 2 to organise a mine 
closure  in  an  orderly  way  and  even  to  delay  it  for  a  few  months  in  order  to  finish  ongoing 
contracts. It helps to better organise the social aspects of the closure with more direct support 

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to the workers concerned, in the form of retraining, counselling, etc. (that goes beyond what is 
foreseen  by  statutory  rights).  The  financing  of  the  environmental  liabilities  will  be  better 
covered while the mine is in the process of closing. 

5.3. 

Option 3: production aid 

Insofar as Member States intend to grant it, by covering operating losses, production aid has 
the ability to keep uncompetitive mines open. It would not save permanent jobs, but it would 
allow a gradual reduction of the work force, giving the time to take account of the workforce's 
age  structure  (early  retirement  and  retirement),  of  "natural  outflows"  (not  replacing  leaving 
workers) and of its qualification (retraining workers to allow employment in other activities). 
It  allows  reducing  the  production  of  an  uncompetitive  mine  by  minimizing  the  number  of 
direct  lay-offs  and  by  maximizing  accompanying  measures  allowing  the  work  force's 
redeployment in other activities. 

The  direct  environmental  negative  impact  of  mining  will  go  on  as  long  as  production 
continues, but the impact on greenhouse gas emissions from coal use remains uncertain in the 
light  of  the  extensive  substitution  by  imported  coal.  The  gradual  closure  may  however 
facilitate preventive measures to protect the surface landscape. 

Experience with economic and regional reconversion has shown that the labour market 
can  more  easily  absorb  the  laid-off  work  force  if  the  lay-offs  are  spread  over  time.  It 
allows  implementing  more  easily  counselling  and  retraining  programmes  and  avoids  that  a 
great share of the former coal miners slip into long-term unemployment. 

5.4. 

Option 4: aid to cover exceptional cost (inherited liabilities) 

This option allows Member State to ensure the financing of the liabilities of a social nature 
(e.g. retraining, pensions, etc.) and an environmental nature (e.g. clean-up and rehabilitation), 
for example in the context of the gradual closure of coal mines. 

Such  aid  may  allow  the  mining  company  not  to  divert  resources  from  other,  potentially 
competitive mining sites to the mines to be closed. 

5.5. 

Option 5: combination of options 3 and 4 

In the case of a gradual close-down of coal mines, aid for inherited liabilities is likely to be 
needed at the same time as other types of aid, mainly operating aid. 

The impact in terms of production and jobs would be very similar to option 3, but under this 
option  5,  it  would  be  possible  to  better  ensure  that  environmental  and  social  inherited 
liabilities are taken care of during the phasing-out period.  

5.6. 

Option 6: prolongation by 10 years of the current Coal Regulation 

Under  the  simple  prolongation  of  the  Regulation  the  type  of  aid  currently  granted  could  be 
extended.  The  option  could  allow  Member  States  to  deviate  from  the  policy  objective  by 
simply  continuing  to  provide  production  aid  to  uncompetitive  mines  without  a  clear 
commitment  for  closure.  It  follows  that  the  same  mining  undertakings  could  still  be 
uncompetitive at the new expiry date of the Regulation in 10 years. The underlying problem 
of non-competitiveness would not be solved, but just delayed. 

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With regard to investment aid, as could be authorized under this option, it cannot contribute to 
the  policy  objectives  at  hand,  i.e.  as  an  accompanying  measure  of  mine  closures.  Indeed, 
investment  aid  rather  promotes  the  development  of  new  activities  or  the  increase  of 
efficiency, neither of which is relevant for accompanying the closure of a coal mine. 

6. 

COMPARING THE OPTIONS 

The assessment gives a contrasted picture of the impact of the various policy options: 

From an economic point of view, option 2 (Guidelines) seems to be preferable to the baseline 
scenario in terms of mitigating the direct economic impact on the most concerned regions and 
industries. 

From  a  social  point  of  view,  option  5  offers  the  best  possibilities  to  cushion  the  negative 
impact of the mine closures, especially given the geographical concentration of this impact. 

From  an  environmental  point  of  view,  the  results  are  uncertain.  Although  the  immediate 
environment  of  the  mines  would  certainly  benefit  from  an  immediate  or  almost  immediate 
stop  of  production  (options  1,  2  and  4),  the  picture  is  uncertain  with  regard  to  global 
greenhouse  gas  emissions  when  the  emissions  from  the  burning  of  coal  by  electricity 
producers  are  taken  into  account.  This  uncertainty  results  from  the  high  substitution  rate  of 
domestic  coal  by  imported  coal.  Although  this  would  not  be  a  100%  substitution,  the 
difference  between  the  policy  options  would  depend  upon  the  modalities  of  the  national 
policies with regard to favouring the switch to other energy sources. 

All in all, options 2 and 5 stand out as the most adequate to attain the policy objectives. 
The choice for one of these two options depends on the weight that policymakers attach to the 
economic aspects on the one hand and the social aspects on the other hand. 

Note  that  the  various  options  assessed  have  been  compared  under  the  assumption  that  the 
concerned  Member  States  would  indeed  grant  aid  as  allowed  under  the  respective  options. 
Sector-specific State aid rules only provide the possibility - not an obligation - for State aid; 
the  impact  assessment  cannot  prejudge  on  the  decisions  that  Member  States  will  take  with 
regard to State aid. 

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