Chokes coal

Polish government chokes on coal

Warsaw tries to figure out how to save jobs as coal spirals towards bankruptcy.

By Helena O'Rourke-Potocki

The Paris climate agreement underscoring that the era of fossil fuel is drawing to an end spells trouble for Poland, which is adamant that its economy will continue to be largely powered by coal far into the future.

The Polish government is already struggling to save the ailing coal industry, which is being hammered by high costs and a plunging world price that has the sector hemorrhaging red ink.

The Paris summit was in some ways a success for Warsaw, which helped strike the term “decarbonization” from the long-term goals. Instead, the climate deal calls for a “balance” between carbon dioxide emitted by human society and CO2 that is naturally absorbed, which for Environment Minister Jan Szyszko means it can make up for some emissions by planting lots of trees.

But despite the wording, the long-term goal of keeping the rise in global temperatures under 1.5 degrees Celsius, rather than the earlier 2 degrees goal, is spurring the European Commission to get even tougher on emissions.

Brussels’ goals, which the current Polish government hopes to water down, already call for the bloc to cut emissions by at least 40 percent by 2030, for renewables to account for 27 percent of energy and for energy efficiency to increase by 27 percent.

Those EU negotiations will take place against Polish coal industry losses that amounted to €390 million in the first three-quarters of 2015. The industry has eye-watering debts of €3.5 billion. Piles of unsold coal are mounting near mines and power plants, while mining companies scramble to pay salaries and have slashed investment to almost nil.

Poland’s coal mines tend to be deep, old and expensive — a dire combination when global coal prices are plummeting. It costs about $75 to mine a ton of Polish coal, while the thermal coal price in Antwerp is hovering at around $50 a ton. A report by the Warsaw Institute of Economic Studies found the average Polish miner digs up 700 tons of coal a year; his U.S. counterpart produces 4,000.

“The coal industry in Poland requires immediate and decisive restructuring,” Polish MEP and former prime minister Jerzy Buzek told POLITICO.

Carbon-free ‘heresy’

The issue is more than economic, it’s also emotional and patriotic. Poland generates almost 90 percent of its electricity with coal, and the sector provides about 100,000 jobs. It also ensures energy independence — all of Poland’s crude and most of its natural gas comes from Russia.

In a recent speech, Andrzej Duda, the president, called talk of decarbonization — the idea that economies should eventually wean themselves off fossil fuel — “heresy.”

Speaking at a mining festival in Bełchatów in central Poland, the site of an enormous open-pit lignite mine linked to Europe’s largest coal-fired power plant, Duda rejected any limits on the mining and use of coal.

The previous government tried to rescue the country’s (and the EU’s) largest coal miner, Kompania Węglowa, a year ago with a plan to shut down expensive and unproductive mines and set up a slimmer and more profitable new company. But the idea of job losses enraged miners, and the plan came to little.

The new government, in power since October, approved a bill allowing the coal sector to continue functioning until 2019 without closing any mines, signed into law on Monday by Duda.

Meanwhile, losses at the mines continue to mount. Prime Minister Beata Szydło wants a special  government agency to step in and buy up stockpiled coal to give mining companies a cash injection. However, the Agency for Material Reserves is in charge of managing strategic energy reserves, and coal isn’t on the list. Furthermore, most of the coal on stockpiles is either pledged as collateral to banks or pre-sold to the power sector.

The plan also risks falling foul of EU public assistance rules. Brussels has been in regular contact with Polish authorities over the past few months and took note of the government’s position.

“The Commission stands ready to assess any new proposals, if and when they are received, and continue the exchanges with the Polish authorities in a constructive manner,” said a Commission spokesperson.

The government is also encouraging state-controlled utilities to invest in coal mines. The previous administration fired the head of one electricity producer who wasn’t enthusiastic about sinking money into coal and the new government promises to be even tougher.

“There is a plan for mines together with energy to become a growing and modern sector,” said Szydło, adding: “Every mining job is important and every one will be defended.”

But those kinds of investments also need to pass muster with Brussels, or else they will be considered improper state aid.

“It is quite clear that all efforts directed at the restructuring of the coal industry must comply with EU competition legislation,” Buzek said.

Costly restructuring

Restructuring implies high job losses. Analysts estimate that employment will have to be cut almost in half, unproductive mines will have to be closed, and mines will have to invest heavily in modernization.

“The government’s promises are built on sand,” said Meri Pukarinen, head of the climate and energy unit at Greenpeace Poland. “There are no magic tricks to save the uncompetitive and oversized hard coal mining industry. The government must recognize the market situation and ensure a smooth transition for the workforce.”

Poland remains committed to coal being part of its energy mix for the long-term future, but that position is increasingly unpopular in the rest of the EU.

Poland is one of the few European countries building new coal-fired power plants — 14 are in various stages of planning and construction, although not all may be completed. The problem for mines is that these plants will replace obsolete old ones, and will be much more efficient in burning coal, which means that the market for Polish coal will continue to shrink.

Coal’s share of Polish energy will also continue to decline as the country ramps up renewables under pressure from the EU, and mulls the construction of a nuclear power plant.

“There is simply no way around today’s market reality — Europe is phasing out coal and seaborne coal markets are in oversupply due to shrinking coal demand globally in key markets, making Polish coal even more uncompetitive,” said Pukarinen.