Climate Policy Coal Energy 20 October, 2020 10:30 am   
Editorial staff

How Poland can survive negotiations with Brussels on the mining sector reform (ANALYSIS)


A lot has been written about the recent deal signed by the government and coal unions (“Agreement Between the Government and the Inter-Union Protest and Strike Committee of the Silesian-Dąbrowski Region”). However, there is no wide-ranging, in-depth discussion on the possible scenarios for the upcoming negotiations with Brussels, which will be difficult. The goal of this article is to map out what events may occur during the decision-making process – Wojciech Kowalczyk and Maciej Burny from EnerXperience write.

The procedure

Firstly, the European Commission competition services will not adopt a position until the government makes a formal notification about its plans to support mines. In case of coal mines, the legal basis for the EC to verify such an application is the Council Decision of 10 December 2010 on State aid to facilitate the closure of uncompetitive coal mines (Council Decision), which is binding until the end of 2027.

According to the Council Decision, there are two basic kinds of aid that can be awarded to coal mines: 1) aid to cover the current production losses, 2) aid to cover exceptional costs, including the cost of paying social welfare benefits and pensions, severance payments, as well as the costs of rehabilitation of former coal mining sites. This is where problems start to emerge, because while at this point there are no legal obstacles to covering the exceptional costs, when it comes to subsidizing production the situation looks different. This is because article 3 of the Council Decision says that covering production losses cannot be extended beyond 2018.

Therefore, considering the Council Decision, the EC will not have a legal basis to consent to Poland subsidizing coal production. In result, in order to implement one of the key points of the Agreement, it is necessary to amend the Council Decision. Such a revision process would involve not only the European Commission, but also the EU Council and the EU Parliament, which would significantly complicate the negotiations and increase the number of stakeholders. The EC has to follow the decision procedure, which means it needs to present the application for the revision of the Decision to the EU Council, and ask for permission to amend it. In practice this means that Poland would have to convince not only the EC, but also the majority of the EU states. Moreover, the European Parliament, which is historically the most “pro-green” EU institution, would also have to present its own position, which would have to be taken into consideration.

Going through such a complicated process to revise the Council Decision would be difficult. Especially that the new Decision would be applicable to Poland only, whereas the current one applies not just to Poland (which has been supporting its coal sector since 2004 via its SRK company), but also Germany (2011) and Spain (2016).

Alternatively, the government may start a dialogue with the EC to try to gain its consent by invoking the Treaty principles on common EU interest. It could argue that meeting the environmental targets and reducing CO2 emissions by phasing out coal earlier constitute such an interest.

This does not change the fact that in every scenario Poland will be obliged to present to Brussels a detailed plan on the final deactivation of coal mines, that will include a list of the coal mines, their shut down deadlines, as well as the justification for providing aid. If the deactivation deadlines are not met, the government will have to recover the aid together with interest. Additionally, a maximum output for coal mines will have to be imposed in advance.

What would a compromise look like?

In case of the scenario where the Council Decision is amended, it will require a Herculean negotiation effort to convince the EC, member states and the European Parliament to agree for the government to aid coal production in Poland. Warsaw will also need to build strong coalitions in EU institutions, and combine the phase-out of the mining sector, with a plan that will limit the participation of coal generation in the Polish energy sector. Certainly, only such a comprehensive and consistent approach will encourage Brussels to be sympathetic to the request.

Most probably, due to the gravity of the issue and the existing Council Decision, the EC and other EU institutions will want to take part in decisions about granting aid to Polish mines. Whatever the scenario, Brussels will definitely want Poland to present an ambitious plan to reduce the participation of coal in its energy mix, which will entail the gradual phase-out of coal mines. It will be absolutely necessary to propose a deadline for a complete coal phase-out, but 2049 is not very realistic. The plans should include both – aiding coal production and coal generation to comprehensively capture the co-dependency between supply and demand. They should also be grounded on strong economic arguments and energy security (basing energy supply on domestic fuel).

Additionally, there is no justification for limiting the aid to PGG’s bituminous coal mines. When it comes to lignite, it is worth following Germany’s approach and consider compensation for entire energy conglomerates (extraction and power generation combined).

It will also matter whether Poland will accept the EU 2050 climate neutrality goal and the increase in CO2 reduction target goals for 2030, as well as whether it will present an ambitious plan to develop renewables and increase energy efficiency.

All hands on deck

Domestically, it will be necessary to introduce a comprehensive bill, which would be similar to the one that has been recently adopted in Germany, to regulate the aid awarded to power plants as well as mines. It is also worth drafting an investment program for Silesia that would maximally utilize the EU Just Transition Fund. We need effective programs to create new jobs and help the employees of the coal mining sector to retrain, not just in Silesia, but also in other coal regions. The existing government programs (Programs for Silesia) are not enough to solve the problem.
Finally, it seems that in order to make any of this possible it will be necessary for Poland’s political parties to reach across the aisle and cooperate during
the negotiations with EU institutions.