Several factors conspire to increase fossil fuel use – FT.com

Under slate-grey skies one chilly October morning in Warsaw, Ewa Kopacz, Poland’s new prime minister, saw first-hand the front line in Europe’s high-stakes battle over the future of coal.

Outside parliament, where she was to make her maiden speech as the country’s leader, hundreds of helmeted miners sounded foghorns, chanted slogans and waved banners in a protest calling for action to save their industry.

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Coal is at a crossroads in Europe. For some, the fuel is too polluting to keep burning in such high quantities. But for others, it is too cheap, too abundant and too politically strategic to abandon.

The midterm future of Europe’s energy mix, and that of coal, may well be decided in Poland, the EU’s second-largest producer and consumer of the black stuff.

Coal is the dirtiest of all fossil fuels. Historically, its use in environmentally aware Europe has been falling. But consumption has ticked up since the US shale gas boom sent coal prices tumbling, and countries such as Poland are resisting calls to switch to lower-emission alternatives.

“It will be extremely difficult politically and economically for us just to end our dependence on coal,” says Oktawian Zajac, head of the coal practice at Boston Consulting Group in Warsaw. “In the medium term, the top priority is not to switch away from coal, but to produce coal that is economically justifiable.”

Poland says the EU’s fossil fuel reduction targets would mean its energy prices would rise 120 per cent

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That is not the view in Brussels, where diplomats are trying to hammer out an EU deal to curb the bloc’s carbon emissions by 2030. That deal is likely to revolve around whether countries are willing to pay for the environmental benefits of reducing their fossil fuel usage given the costlier alternatives.

The biggest impediment to agreement is coal-hungry Poland, and the angry miners who won support in Ms Kopacz’s speech. “I realise how important environmental concerns are . . .but my government will not accept increases in the costs of energy in Poland and the impact on the economy,” the prime minister said, adding that the fuel was of strategic national importance.

Heavy coal consumers in the EU, such as Poland, the Czech Republic and Bulgaria, say the proposed reduction targets would cripple their economies by raising energy prices. Poland says its would rocket 120 per cent.

Coal accounts for 27 per cent of the EU’s gross power generation, according to Eurostat, just behind natural gas, and below the US and global average of about 40 per cent. Consumption in the EU fell 40 per cent between 1990 and 2009, and with large users, such as the UK and Germany committed to further reductions, use of coal – which produces more carbon dioxide than the equivalent amount of gas or nuclear power – should decline over the coming decades.

But a series of unrelated events have conspired to make coal very attractive to European power producers, muddying the debate and causing frustration to environmental campaigners.

The surge in US shale gas production over the past half decade has pushed down gas prices and made imports of US coal cheaper. That effect may increase as environmental laws passed in the US to curb emissions could lead to increased dumping of American coal on the European market. Add to that the uncertainty over Russian gas supplies and the fear in European capitals of relying on Moscow to supply their power needs, and a still-sluggish EU economy where countries face tight budgets, and it is easy to see why coal is a tempting proposition.

Since 2009, consumption has crept up 10 per cent, according to Eurostat. Even in Germany, which has been at pains to stress its commitment to cutting emissions, coal use has risen since 2010, partly as a result of its decision to shut all its nuclear power plants by 2022.

That increase in coal use, analysts say, is inevitable, as Europe seeks to keep its industrial base globally competitive.

“The truth is that it will be impossible for Europe to stay cost-competitive with the US without using coal,” says BCG’s Mr Zajac. “Coal is still very much part of the future energy mix.”

The UK, the EU’s third-largest consumer of coal, is another outspoken supporter of emissions reductions.

But with many of its nuclear power stations heading for decommissioning and the potential of its shale gas deposits still not fully known, coal will probably continue to be an important element of its energy mix.

RELATED TOPICS

European Union,Climate change,EU energy,Shale Oil and Gas

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