The reputation of coal has sustained great damage from an increasing amount of analytical reports describing it as the lowest-hanging fruit to halt global warming. Especially amongst OECD countries, getting out of coal (oftentimes taking on great financial losses just to have it off their hands) has become an infectious habit. Thermal coal remains the main target as its use in electricity generation triggers much more public backlash than, for instance, metallurgical coal, an indispensable component of the steel industry as we know it. As much as coal pollutes the skies of the Old Continent, the brusqueness of anti-coal sentiment is almost certain to generate conflict between remaining producers and their neighbours. The diplomatic spat between Poland and Czech Republic certainly points to that direction.
It should come as no surprise that the onslaught is coming on the back of Europe seeking more coal (albeit as an interim measure). The speed with which European gas prices have risen surpassed the simultaneous appreciation of coal, thus limiting opportunities for coal-to-gas switching. This is quite a development as it goes completely against two major coal industry trends. First and foremost, carbon prices still hover around 50 EUR per metric ton CO2, roughly double of what they were a year ago. Second, the coal market has been going through something of a supply crisis – China’s ban on Australian coal pushed up prices globally, whilst heavy rainfall in the Southern Hemisphere this year hindered exports from Indonesia and partially Australia.
Against the background of all the above, Central Europe has transformed into a legal battlefield. The Czech Republic filed a lawsuit against Poland, the absolute coal-producing heavyweight of CEE, claiming Warsaw’s volte-face on its coal energy commitments constituted an immediate impediment to its long-term sustainability – including but not limited to its polluting and potentially desiccating of underground waters currently used as drinking water on the Czech side. The Turow coal mine is one of Europe’s largest and oldest, having been producing for a whopping 117 years already, since 1904. With the operating license for Turow running out, the coal mine was expected to be phased out, propelling Poland to a greener future.
The Polish government, however, decided to extend Turow’s license to 2044, meaning that the open pit would be extended and the 2 GW coal-fired next to the mine will be kept alive. Turow is Poland’s second-largest coal project after Belchatow, in contrast to the latter, however, it is located immediately next to two borders, those with Germany and the Czech Republic. Considering that the extension of the Turow coal project would bring the open-pit mine as close as 70 meters from the Czech border, it should not come as a surprise that the Czech government sued Poland for violation of EU environmental regulations. Prague alleges that the decision was taken without required rounds of public consultation and without carrying out a necessary environmental impact assessment.
The Polish government has a doubly difficult task ahead of it. Not only is coal cheap to extract domestically and plentiful in terms of reserves, it serves also a symbolic role in Poland’s history, as the manifestation of the local miners’ revolts in Soviet times that brought down the Communist regime there. Being the nation’s perhaps only commercially viable bid for energy self-sufficiency, Poland’s coal deposits are also located in the southern Silesian region, i.e. far away from the most profitable wind farms in the Baltic Sea and the prospective nuclear plants (also located along the Baltic Coast). This essentially means that Warsaw is fully cognizant that if it shuts down its coal mines in Silesia, new non-polluting production sites that could supplant coal would be far away from the traditional coal regions. Apart from straightforward export-import economics, this has also far-reaching social implications.
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Poland is working to create a new state-owned mining company, presumably by the end if 2022, poised to take over all coal assets from private producers that might leave the country as debts eat away coal’s profitability. The nationalization of the coal sector has many disadvantages and one evident advantage – the European Commission would find it harder to hand-wring regional governments into obedience. Brussels effectively sided with Prague on the issue of the Turow coal plant, stating that the Bogatynia Region (where Turow is located) would not receive funds from the EU Just Transition programme. For a country that remains the largest recipient of EU funds (between 2014 and 2020 Warsaw received a hefty €106 billion from the EU budget) that is a serious threat, not to be taken lightly.
The final outcome of the Czech-Polish coal dispute largely depends on the flexibility of the Polish side. Czech authorities have previously claimed that provided Poland sets up systems of long-term monitoring of groundwater and noise levels, ensures that no subsidence is to take place on the Czech and German side as a result of coal extraction and guarantees financial compensation should any of the above conditions not be met, then it could bite the bullet and abandon its claim at the Court of Justice of the European Union. Warsaw seems to be willing to settle the deal amicably with its southern neighbour, with Prime Minister Morawiecki going as far as stating that Poland would spend up to €45 million to prevent the loss and pollution of groundwater. Wary of having long-standing rows with Poland, the Czech authorities might agree to such a deal – triggering the end of the first of many European coal “wars” to come.
By Gerald Jansen for Oilprice.com
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The EU talks big about wanting a rapid energy transition and net zero emissions and yet Poland, the EU’s largest coal producer remains the largest recipient of EU funds receiving a hefty 106 billion euros between 2014 and 2020.
A few days ago, the IEA pleaded asked China to reduce its coal consumption. Yet, it never asked Poland to stop investment in and production of coal as it did with oil and gas. Could the reason be that Poland is an ally of the United States against Russia and therefore the IEA doesn’t want to upset the boss?
The EU and the IEA must be aware that an energy transition wouldn’t succeed without natural gas whilst the global economy will come a standstill without oil.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London