Germany's reliance on imported steam coal could increase dramatically in the next decade if a political deal to cut subsidies to the country's eight remaining coal mines sticks.
Chancellor Angela Merkel's Christian Democrat party and her Social Democrat coalition government partners have agreed in principle to phase out state subsidies to the German coal industry by 2018, although the decision is subject to review in 2012.
Merkel had wanted a quick end to subsidies to Germany's coal industry while the Social Democrats had wanted coal subsidies to continue for as long as there is a German coal industry.
There is a tacit acceptance within Germany's coal industry that it is in decline and that the volume of coal imports will expand rapidly in the next 20 years.
Wolfgang Ritschel, managing director of the German Coal Importers Association said in a presentation to the Coaltrans South Africa conference in March 2006 that Germany's domestic coal production had declined to around 25 million mt/year (including 4 million mt/year of coking coal) in 2005 from 70 million mt/year in 1990.
Over the same period Ritschel said Germany's coal imports had grown to 40 million mt/year by 2005 from 12 million mt/year in 1990.
In his presentation, Ritschel said that he expected German steam coal production to fall to around 14 million mt/year in 2012 and that German steam coal imports could reach between 34 million and 36 million mt/year by 2010 and 48 million to 56 million mt/year in 2020.
The issue of government subsidies to the coal industry has been holding up the stock exchange flotation of German conglomerate RAG, whose Deutsche Steinkohle (DSK) subsidiary owns Germany's eight remaining underground coal mines.
DSK's eight mines are mainly located in North Rhine Westphalia and Saarland in north-west Germany and produced 20.7 million mt/year of steam coal exclusively for the German market, according to a January 30 statement from DSK.
DSK spokesman Holger Seier said there are plans to close three of its coal mines. "Deutsche Steinkohle has to close the mine Walsum in Duisburg in the middle of 2008 and the mine Lippe in Gelsenkirchen at the beginning of 2010. There has to be one more [mine] to be closed but the mine and the date is not named right now," said Seier in the statement.
News of the Merkel deal in Germany comes as the future of state subsidies to coal industries across Western Europe is being reviewed by the European Commission in Brussels.
European Council regulation number 1407/2002 which governs the system of state subsidies to the coal industry in Europe is due to expire on December 31, 2010, unless it is renewed by European governments before January 1, 2008.
"The debate in Germany is driven by the fact the aid scheme automatically expires and so becomes unlawful by default at the end of 2010," said one coal industry expert.
He believed the deal between the Christian Democrats (CDU) and Social Democrats (SPD) was Germany in effect formulating its negotiating position vis-a-vis the rest of the European Union over coal industry subsidies.
The CDU/SPD deal does appear to assume that state subsidy to Germany's coal industry will continue after 2010, pointing to a renewal of the European subsidy regulation later this year.
Germany is in a strong position to influence Commission policy. It took over the presidency of the European Union on January 1, 2007 for a period of six months and is now responsible for driving forward all European Union policy, including that of coal industry subsidies.
The coal market expert stressed, however, that any internal German political agreement would need to be endorsed by the rest of the European Union, as required by Article 87 of the European Union Treaty.
A report into a review of the European Council's coal subsidy regulation was to have been handed to the European Parliament and European Council of Ministers at the end of 2006. But its publication was pushed back to coincide with the Commission's wide ranging review of energy policy, which was issued preliminarily on January 10 and expected to be finalized later this year.
Germany's coal industry is one of the largest recipients of state subsidies at around €2.5 billion/year ($3.2 billion/year) although this figure is set to fall slightly to €2 billion/year in 2010. Other countries giving subsidies to their coal industries include, France, Hungary, Poland, Slovakia and the UK.
Created: February 15, 2007
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