coal subsidies

A last-minute proposition to extend coal subsidies has disrupted the plans of European Union countries to approve a reform of the bloc’s power market. This reform was specifically designed to transition the electricity system towards cleaner energy sources.

Energy ministers from EU countries convened in Luxembourg on Monday with the goal of reaching a consensus on new power market regulations. These regulations aimed to facilitate the expansion of low-carbon power and prevent a recurrence of last year’s energy crisis, during which consumers faced exorbitant energy bills due to record-high gas prices.

The proposed reform seeks to stabilize and predict power prices by implementing fixed-price “contracts for difference” for newly supported state-backed renewables and low-carbon nuclear plants. The ministers must address the details concerning the allocation of revenues generated through these subsidy schemes.

However, discussions have become complicated due to a late proposal put forth by Sweden, the current holder of the EU’s rotating presidency. This proposal suggests the continuation of capacity mechanism subsidies for coal power plants, enabling them to receive payments for maintaining enough power generating capacity to avert blackouts.

Poland, which stands to extend its support scheme for coal plants beyond 2025 under this proposal, expressed last week that the idea enjoyed majority support.

Nevertheless, EU diplomats disclosed that certain governments have expressed opposition to the proposal on environmental grounds, potentially jeopardizing an agreement on the broader power reforms.

“We believe this could potentially hinder a resolution,” noted an EU country diplomat.

Coal is the most carbon dioxide (CO2)-emitting fossil fuel, and scientists emphasize the urgent need for its reduced use during this decade to avert the most severe consequences of climate change.

Some EU countries argue that they require greater flexibility in their transition away from coal and seek support for new industries in communities heavily reliant on jobs in the coal sector. Poland, for instance, relies on coal for approximately 70% of its power generation.

A senior EU official clarified that the inclusion of the coal loophole would be subject to “very specific conditions.” The official added that they anticipate the ministers to endorse the power market reforms, but it remains uncertain if the coal carve-out will be included in the final agreement.

According to the proposal obtained by Reuters, capacity mechanisms established prior to July 2019 could temporarily bypass the usual CO2 limit imposed by the EU on these schemes. This exemption would enable coal plants to participate if they fail to attract sufficient lower-carbon generators.

Once EU countries finalize their position, they will need to negotiate the ultimate power market upgrade with the EU Parliament, aiming to enact the legislation prior to next year’s EU Parliament elections.


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