euracoal annual report 2011l

7/31/2019 Euracoal Annual Report 2011l

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European Association for Coal and Lignite AISBL

Annual Report2011

EURACOAL European Association for Coal and Lignite AISBL

Avenue de Tervueren 168 Bte 11 B -1150 Bruxelles

Phone: 32 2 775 31 70

E-Mail: [email protected] www.euracoal.org


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Contents

MESSAGE FROM THE PRESIDENT Dr.-Ing. Hartmuth Zei

COAL IN EUROPE

REPORT BY THE SECRETARY-GENERAL Mr. Brian Ricketts

COMMITTEE ACTIVITIES

20 ENERGY POLICY COMMITTEE Dr.-Ing. George Milojcic

22 ENVIRONMENT COMMITTEE Mr. David Brewer

23 TECHNICAL RESEARCH COMMITTEE Dr.-Ing. Jrgen Czwalinna

24 MARKET COMMITTEE Mr. Nigel Yaxley

ENERGY ROADMAP 2050 - A COAL INDUSTRY RESPONSE

MEMBERS AND ACTIVITIES

BOES

Ensuring Energy Security

UNFCCC Kyoto Protocol

Key Points from DG Climate Action Roadmap 2050

EC EURACOAL 7th Coal Dialogue

EC Berlin Fossil Fuels Forum

A Clean Coal Strategy

A Clean Coal Strategy (cont.)

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6

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2European Associat ion for Coal and Lignite EURACOALAnnual Report 2011 2


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3European Association for Coal and Lignite EURACOAL Annual Report 2011

Dr.-Ing. Hartmuth Zei

President of EURACOAL

The euro crisis dominated EU politicsduring 2011, but energy andclimate policy was not orgotten.Both DG Climate Action and DGEnergy looked ahead 40 years withtheir roadmaps to 2050. These will

inuence decisions taken over thecoming years and will also helpto defne the EUs position on theinternational stage. The EU mustshow real leadership, not only in thefeld o climate policy, but also instrengthening competiveness andsecurity o supply.The terrible disaster at Fukushima in Japan marked 2011 as a year whenthe energy debate in Europe, especially in Germany, took a sharp turn.The European Commission swiftly initiated stress tests on the EUs 143reactors whilst Germany revised its former policy of life-time extensionand decided to phase out its use of nuclear power by 2022. Beyond thedisaster at Fukushima, 7 GW of coal-fired power plants and related portinfrastructure were lost to the Japanese tsunami and reminded governmentseverywhere of just how important it is to have a robust power system withreserve capacities. As intermittent renewables grow to account for more ofEU electricity supply, the need for reliable capacity, backup and grid services

must become a priority to ensure security of supply (see page 4).

Once again, in 2011, global coal use grew strongly Chinas coal output rose8.7% to 3.52 billion tonnes, according to the National Bureau of Statistics,and the country imported 182 million tonnes, overtaking Japan to becomethe worlds largest coal importer. China now accounts for half of all coalconsumption. Globally, coal has been the fastest-growing source of energyover the last decade, growing at around 5% per year. The low-carbonrevolution is simply not happening, because none of the alternative energyoptions is yet able to compete with coal on cost of electricity. Wind, waveand solar rely on subsidies that some governments and some consumerscan afford, but for most countries, especially developing countries,alternative energy sources remain too expensive. Investment in low-carbon

energy may be a sound business decision in some countries, but climateprotection requires all countries to act together. This was the aim of the17th Conference of the Parties to the UN Framework Convention on ClimateChange that concluded on 11 December 2011 in Durban where the inclusionof CO2 capture and storage (CCS) in the clean development mechanism wasa very positive outcome (see page 6).

Message rom the PresidentDr.-Ing. Hartmuth Zei


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Diversity o uel types and uel sources is a prerequisite or energy

security. Coal, both locally mined and imported rom a diverse

number o reliable exporting countries, ulfls this requirement.

Energy storage is also vital to energy security and electricity

storage will become more important as more intermittent

renewables are deployed. The cheapest virtual store o electricity

is a coal stock at a coal-fred power plant.

Related to energy storage is power system exibility. Coal-fred

plants, especially newer ones, are very exible and are the perect

complement to renewable energy sources.

Ensuring energy security when the winddoesnt blow or the sun doesnt shine

4European Associat ion for Coal and Lignite EURACOALAnnual Report 2011


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Along with global energy consumption, CO2 emissions from fossil-fuelcombustion have grown. In 2010, emissions are estimated by the InternationalEnergy Agency to have been 30.6 billion tonnes. The European Commissionbases its energy policy on achieving certain emission reductions over thecoming years, and assumes that the rest of the world will follow. However,the evidence is clear: the rest of the world is not following. Global CO2emissions have grown by a massive 46% since the 1990 baseline year ofthe Kyoto Protocol and, at 12%, the EUs share is relatively small. Whilstwe welcome an energy policy that addresses climate objectives, we mustensure that the Commission properly reflects the important role of coalin its communications and legislative proposals. Coal is the No.1 fuel forelectricity generation in the EU and remains our most economic and securesource of electricity.

The EU 2020 target is to cut total greenhouse gas (GHG) emissions whichinclude CO2 by 20% over thirty years and means a fall from 5.8 billiontonnes of CO2-equivalent in 1990 to some 4.6 billion tonnes in 2020. Thecollapse of heavy industry in Eastern Europe during the 1990s and fuelswitching from coal to gas in, for example, the UK, Spain and Italy allowedGHG reductions to be achieved relatively easily and without any specificpolicy drivers. However, with the targets now proposed for 2050, EUemissions must be cut three-times faster than during the period from 1990

to 2020. This cut in GHG emissions by the EU will reduce the forecast globalGHG emissions of 71 billion tonnes by only 7% in 2050 the EU, actingalone makes little difference to the global picture of rising emissions.

This is the main reason why EURACOAL is so interested in power plantefficiency and CCS deployed not just in the EU, but around the world.They offer what appears to be an absolutely necessary response to theclimate challenge and policymakers should reflect the role that modern coal some say smart coal can play. Power plant renewal, modernisationand CCS offer a certain route to lower carbon emissions. A combination ofrenewables, nuclear in some countries and fossil fuels coal and gas withCCS provide the pillars of a secure, low-carbon energy future.

EURACOAL wants to see policies that encourage new plant build: high-efficiency power plants and plants that are CO2 capture-ready. Whilst CCS isalready practiced by the oil and gas industry, and at pilot plants, its large-scaleapplication for power generation faces barriers. We know a lot more about CCSthan we did just five years ago. The Commission has been progressive with aCCS Directive and funds to support, at least in part, some very large projects.Many projects have demonstrated that CO2 can be captured the engineershave delivered on that promise and costs will surely fall. What we have notseen is the successful completion of large-scale integrated demonstrationprojects for power generation. Utility companies are not specialists in CO2transport or storage infrastructure and it seems that a separation of tasks between plant operators and specialist infrastructure companies couldcontribute to the solution. But more than that, the transport and storage

of CO2 does not receive the necessary political support, often because ofsignificant public opposition. Additional incentives and a strong politicalcommitment are necessary to push CCS projects forward in the EU and welook forward to a Commission communication on this in 2012.

Message rom the President


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The ailure to reach agreement in Copenhagen in 2009, ollowed by the weak

Cancn Agreements in 2010, meant that expectations were not high among

the negotiators in Durban which included EU negotiators led by the Polish

government. Ater a fnal marathon session lasting sixty hours, agreement was

reached to prepare a legally binding post-Kyoto agreement by 2015, taking eect

in 2020, and binding all 194 countries to emission goals. In the meantime, it

is likely that the Kyoto Protocol will continue ater 2012, at least until the new

agreement is in place. The Durban Platorm is notable because it includes China,

India and other developing countries, as well as the USA. However, the agreement

comes too late to put us on a path that would limit global temperature rise to

2C. The EUs policy objective, supported in principle by the major economies

within the G8, will be missed. A rise o 3C or 4C looks to be inevitable.

Immediately ater the Durban meeting, Canada announced that it would withdraw

rom the Kyoto Protocol. With its booming oil sands sector, Canada has no hope

o achieving its Kyoto target and did not relish the prospect o paying billionso dollars to buy assigned amount units (AAUs), rom say Russia, to meet its

commitment. The Kyoto Protocol now covers only 21% o global greenhouse

emissions, based on the latest data or 2008 rom the IEA.

The UN process moves slowly, step by step, but has ailed in its objective to cut

global emissions. Despite the global fnancial crisis, CO2 emissions continue to

rise; the Kyoto Protocol has had no discernible impact on this trend. In act, the

core driver or CO2 emissions since 1990 has not been how many wind arms are

built in Europe, but the enormous increase in ossil uel use at the global level,

concentrated mainly in China. Only i those emissions are tackled will the EUs

2C policy objective be achieved.

In this respect, there was one very positive outcome rom the Durban meeting.

At Cancn in 2010, a decision was taken to make CO2 capture and storage

(CCS) eligible as a project activity under the clean development mechanism

(CDM), provided that certain issues were addressed, namely modalities and

procedures. In Durban, a set o rules was adopted such that CCS has fnally

gained international recognition as a legitimate low-carbon technology in the

fght against climate change. Without a replacement or the Kyoto Protocol,the fnancial value o credits rom any projects under the CDM is uncertain, but

most observers believe that CDM projects will continue in some way and the coal

industry can be very pleased that CCS projects are now eligible.

UNFCCC Kyoto Protocol:A positive outcome


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Europe has the capacity to set a good example by developing technology,establishing good practices and taking realistic energy policy decisions. Ifwe are successful enough to maintain our strong industrial base, poweredby a robust energy system, then other regions of the world might be inspiredto follow.

Looking ahead to 2012, the Danish Presidency of the EU will likely influencemuch of the debate for the whole year by setting the scene for the CypriotPresidency in the latter half. The Danish Presidency will promote sustainablegrowth, under the banner of a green Europe, by working on the EUstargets for 2020 and beyond. In the energy sector, efforts will be directedat energy efficiency, renewables and energy security. In fact, the Presidencyenvisages a framework for energy savings along the entire energy chain, fromproduction to use, which EURACOAL believes should include the efficiencyof power generation. Under the headline of a dynamic Europe, the DanishPresidency will promote a well-functioning internal energy market throughthe expansion of energy infrastructure, as envisaged by the Commission.This should see more competition playing to the strengths of coal. On the2050 roadmaps, the Danish Presidency will seek to ensure that Council givesdirection on longer-term goals. The Presidency also wants a strong EU voiceat the Rio+20 UN Conference on Sustainable Development in Brazil in June,when the EU will need to present a common position on climate action (see

page 8).

I was delighted that, in November, EURACOAL was able to support the SecondEuropean Coal Days, hosted in the European Parliament by Dr. ChristianEhler MEP and Mr. Bogdan Marcinkiewicz MEP. The message I heard fromMr. Philip Lowe, Director-General of Energy, and later from the Commissionerfor Energy, Mr. Gnther Oettinger, was that the EU needs to show leadershipand to push ahead with clean coal technologies, including CCS. Whilst Iagree, CCS must be seen as the end point. I reiterate that there are steps tobe taken along the way. We must invest in more efficient coal-fired powerplants that are ready to be retrofitted with CCS when it is competitive. Weneed a roadmap for a European CO2 transport infrastructure. And we needpolicy and regulation to enable CO2 storage, whilst addressing the issue

of acceptance. In December, EURACOAL sponsored a dinner debate in theEuropean Parliament with Dr. Fatih Birol, Chief Economist at the InternationalEnergy Agency. He described coal as the forgotten fuel, using statisticsto show just how much of the worlds recent economic growth has beenfuelled by coal. However, he too expressed some doubts about how quicklyCCS can be commercialised. EURACOAL calls for a new plan for CCS thatreflects the need to deploy it widely and outlines what steps are neededtoday in the EU.

These then are the challenges that EURACOAL must address in 2012 withthe help and guidance of members. I offer my thanks to all EURACOALmembers who have worked hard with our secretariat in Brussels to promoteour common interests over the last year.

Dr.-Ing. Hartmuth Zei President

Message rom the President


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The 2020 targets or 20% renewables, 20% GHG emission

reduction and 20% reduction in energy use all stand.

New, longer-term GHG reduction targets are adopted, with an 80%

to 95% reduction by 2050.

The power sector is expected to deliver very substantial CO2

savings, driven by more aggressive emissions trading, and perhaps

by energy taxation and other measures to deliver a 60% cut in

emissions by 2030 on the way towards complete decarbonisation by

2050.

The EU will become heavily dependent on imported oil and gas by

2050: oil supply will be entirely dependent on imports and over

90% o gas demand will be imported.

* COM (2011) 112, 8 March 2011


Key Points rom DG Climate Action:Roadmap or Moving to a CompetitiveLow-Carbon Economy in 2050*


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1 - Dr.-Ing. Hartmuth Zei, EURACOAL President and Chairman of the Managing Directors at

Vattenfall Europe Mining AG & Vattenfall Europe Generation AG (left) with Mr. Giles Chichester

MEP (centre) and Dr. Fatih Birol, Chief Economist, International Energy Agency (right) at a Euro-

pean Energy Forum dinner debate sponsored by EURACOAL in the European Parliament, Brussels

on 7 December 2011.

2 - In August 2011, EURACOAL was honoured to receive from the Governing Council of the

Bulgarian Chamber of Mining and Geology (BCMG) a special award for its contribution to the

development of the Bulgarian mining industry. The award a silver medal was presented at the

National Miners Day Celebration in Sofia to coincide with BCMGs 20th anniversary.



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Source: EURACOAL Members

* estimates

Information

Lignite production

Hard coal production

Hard coal imports

176.5

Netherlands

11.7

Belgium

4.0

France

15.3

18.3

United Kingdom

31.7

Ireland

1.9

6.6

Spain

15.3

Portugal

3.6

Switzerland

0.2*


Coal in Europe 2011Lignite production, hard coal production and imports (in Mt)


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9*

Norway

0.7*

Sweden

2.7

Finland

7,0

Estonia

0.1*

Latvia

0.1*

Lithuania

0.3*

Belarus

0.1*

58.3*

Ukraine

12.7


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Report by the Secretary-GeneralMr. Brian Ricketts

Together with EURACOALscommittees, the secretariat keptmembers informed on coal-relatedactivities and initiatives at the EUlevel during 2011. Meetings wereheld to promote the interests ofthe coal sector with the EuropeanCommission, European Parliamentand Member State representations,

as well as other bodies suchas the European Economic andSocial Committee. In addition,presentations were made at anumber of important conferences,including VDKi, Hamburg, Germany;Handelsblatt, Berlin; Alushta,Ukraine; PPWB, Bechatw,Poland; RWTH Aachen, Germany;World Mining Congress, Istanbul,Turkey; ZPGWK, Katowice, Poland;BCURA, London; Coaltrans, Madrid;UNECE, Geneva, Switzerland; and

the International Energy Agency,Paris. EURACOAL continued itsco-operation with the World CoalAssociation and welcomed thesupport of the Central EuropeEnergy Partners at events in 2011.

In January, President Barrosoand Environment CommissionerPotocnik launched the seventh andlast flagship initiative under theEurope 2020 Strategy: Resource-efficient Europe. The Europe 2020Strategy aims at building smart,sustainable and inclusive growth forEurope. It was launched in March2010 to replace the Lisbon Agendawhich some critics say failed toreach its goal of making the EU,the most competitive and the mostdynamic knowledge-based economyin the world.

The Resource-efficient Europeinitiative will guide EU policies onenergy, transport, climate change,industry, commodities, agriculture,

fisheries, biodiversity and regionaldevelopment to achieve manyobjectives, including GHG emissionreductions of 80% to 95% in theEU by 2050, tightened air qualitylegislation and making the Union

more resilient to future rises inglobal energy and commodityprices.

Indeed, President Barroso andPresident Sarkozy of France haveboth called for efforts at theinternational level by the G8,by the G20 and by the EU to

mitigate the unexplained pricevolatility of all commodities,including coal. Neither wants tosee commodity markets sufferthe same meltdown that financialmarkets experienced in 2008.President Sarkozy foresees a finiteand limited supply of commoditiesto meet the needs of nine billionpeople in 2050, threatening societalbreakdown, hunger and war. Markettransparency, a central transactionregister, and further regulation of

commodity and derivative marketsall feature in new EU legislation thatincludes cash deposits and margincalls for many derivative traders.This is likely to slow the growth incoal swaps.

In another development, theCommission proposed a revisionof the Energy Taxation Directive tointroduce a combined energy andCO2 tax across the EU for the non-ETS sectors. Unwelcome as it is,this proposal does not affect large-scale electricity generation fromcoal or lignite, or other uses thatfall under the EU Emissions TradingScheme (ETS).

The well-established EuropeanRound Table on Coal or CoalRound in the European Parliamentcontinued with three meetingsin 2011. This non-party politicalgrouping of MEPs with an interestin coal, chaired by Dr. ChristianEhler MEP, allows EURACOAL

members and invited guests todebate topical issues with MEPs.For example, in March, EURACOALPresident Zei led a discussion onSurging Global Demand for Coalwhich examined growing coal


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Report by the Secretary-General

production in China and Russiaand what this means for the EU.We were delighted to welcome Mr.Oleg Pertsovskiy, Head of Strategyat SUEK the Siberian Coal EnergyCompany. The two guest speakerswere Dr. Moriz Paulus of theInstitute of Energy Economics atthe University of Cologne working

on secondment at the IEA on a newcoal market report and Dr. KevinRosner, an American expert on theRussian energy sector who offeredhis geopolitical perspective onenergy supply.

At the end of May, a Coal Roundon coal conversion gave a platformto the Innovative BraunkohlenIntegration initiative in MiddleGermany. This group aims to makeuse of Germanys substantial lignite

resource as a chemical feedstock.The capital investment needed forthe gasification process is large,with or without CCS, and Prof.Bernd Meyer called for fuel-specificbenchmarks under the EU ETS toimprove the economics. Mr. SergePrineau, President of the WorldCoal-to-Liquids Conference offeredan overview of coal-to-liquids covering mainly South Africa andChina, but also citing a numberof interesting projects in othercountries.

In November, the Coal Round turnedits attention to CO2 capture and use(CCU), an interesting complementto CCS. The use of algae toproduce biomass and the microbialconversion of CO2 offer theexciting prospect of recycling CO2into useful products. Also on theagenda, was the carbon footprintof coal compared with natural gas both conventional gas and shalegas. Dr. Hans-Wilhelm Schiffer

of RWE presented the results ofrecent analyses which show thatpolicymakers must look beyondemissions at the point of use if theyare to fully understand the climateimpact of different fuel choices.

The coal industry has lobbiedfor a two-track approach for thedevelopment of coal-fired powergeneration: improved efficiency andCO2 capture and storage (CCS).Both tracks are needed to reduceemissions. Recently, the CCStrack has dominated policy in theEU, and even more so in certain

Member States. The InternationalEnergy Agencys CCS roadmap,published in November 2009,influenced governments to demandCCS, despite it not yet being inany way commercial. Efficiencyimprovements will be covered in anew roadmap from the IEA on highefficiency and low emissions (HELEroadmap), scheduled for publicationin 2012. EURACOAL is supportingthis work and hopes that advicefrom the IEA will push governments

back to the two-track approach.

During 2011, EURACOAL membersworked closely with our Polishmembers and supported a numberof activities in Poland. On 5 July,the European Parliament rejecteda proposal to increase the EUs2020 CO2 emission reductiontarget to 30%. Polish MEPs votedagainst the proposal and the Polishgovernment was alone in being theonly Member State not willing tosupport the proposal in an earlierEnvironment Council meeting, inJune. The Katowice Declaration,which addresses EU climate andenergy policy from the perspectiveof Poland, was agreed byparticipants at the 20th anniversaryconference of the Polish Hard CoalEmployers Association (ZPGWK)in October. EURACOAL PresidentZei forwarded this declaration toPresidents Buzek and Barosso, aswell as to the Director-Generalsof Climate Action, Energy and

Environment.

EURACOAL is engaged in a SectoralSocial Dialogue at the Europeanlevel covering the extractiveindustries sector. In a process


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EC-EURACOAL 7th Coal Dialogue,26 May 2011

The 7th Coal Dialogue, jointly hosted by the European

Commission and EURACOAL, covered two major

topics: energy policy and coal-related R&D.

Ms. Mechthild Wrsdrer, in charge o DG Energys

2050 roadmap, explained how many scenarios could

deliver the substantial carbon savings presented in

DG Climate Actions 2050 roadmap. Dr. Milojcic spoke

on behal o EURACOAL and Dr. Franz Bauer o VGB

in Germany presented a detailed account o the steps

that would need to be taken to allow a substantially

greater contribution rom renewables, whilst

maintaining a secure and reliable electricity grid.

The second topic was R&D and Pro. Kryszto

Stanczyk rom the Central Mining Institute or

GIG in Poland represented EURACOAL alongside

Dr. Jrgen Czwalinna, chair o our Technical

Research Committee. Unconventional coal extraction

technologies and novel coal conversion processes, to

produce chemicals rom lignite or example, deserve

a place in EU-unded research. The EC Research Fund

or Coal and Steel unds R&D in conventional coalextraction, coal conversion and coal use technologies,

but the upcoming debate on Framework Programme 8

or Horizon 2020 should look at how to support

development o the exible and efcient backup

power plants that will be needed in the uture.



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managed by DG Employment,EURACOAL members meet withother employer associationsand employee representativesfrom the mining industry todiscuss matters of mutualinterest. In 2011, EURACOAL co-operated with Social Dialoguemembers on the Budapest IIIDeclaration on indigenous coalproduction, responding to CouncilDecision 2010/787/EU on Stateaid to facilitate the closure ofuncompetitive coal mines. Therequirement for coal mines thatcontinue to operate after 2018 torepay State aid is onerous: any minethat has to repay a historic legacyof State aid is effectively preventedfrom operating competitively.EURACOAL members, in Spainfor example, are fighting hard to

have this requirement changed andEURACOAL will continue to supportall steps towards a competitiveindustry.

The Commissions Raw MaterialsInitiative, launched in 2008,gathered momentum in 2011 withthe publication by DG Enterpriseof a new strategy. It is based onthree pillars: equitable accessto sustainable raw materials onthe world market; improving the

extraction conditions in Europe;and, promoting recycling andresource efficiency. Whilst it isgenerally welcomed by industry,it only applies to non-energy rawmaterials, so the coal industrymust seek such supportive policyelsewhere. In September, Mr.Reinhard Btikofer MEP wasrapporteur for the Parliamentsown-initiative response to theCommissions Raw MaterialsStrategy for Europe. The so-called

Btikofer Report was the subjectof many amendments. One of thesecalled for the Commission to comeforward with proposals for a tax onmineral resources, water extractionand land use. This would have beena very unwelcome move, especially

given the scale of water extractionand land use by the coal andlignite mining industry. EURACOALwas able to agree and use a jointposition paper developed withmembers of the Social Dialogue toinfluence MEPs. The amendmentcalling for tax proposals waswithdrawn prior to voting.

In September, amendmentsproposed by MEPs to the Seveso IIIDirective on major accident hazardscould have been disastrous for thecoal industry. A proposal to classifyCO2 as a hazardous substance wasclearly ill thought out and thankfullyreceived little support. However,another proposal to include shalegas extraction, and hence becauseof the wording coal and lignitemining, went to a vote in P lenary

where it was narrowly defeatedthanks to a successful lobby byEURACOAL.

The Energy Efficiency Plan,published in March by DG Energy,laid the foundation for the EnergyEfficiency Directive proposed inJune. The proposal focuses on end-use energy efficiency, notably inbuildings and by the public sector.The starting point is the third ofthe EUs 20-20-20 targets: a non-

binding 20% reduction in energy-use. The directive makes clear thatEU energy consumption shouldbe capped at 1,474 Mtoe by 2020.In 2009, the EU used 1,702 Mtoe,so we should reduce our energyconsumption. This either impliesa complete decoupling of energyconsumption and economic growth,which has never happened in anycountry, or a cap on economicgrowth, which would seem to beeconomically damaging for the EU.

Of most concern to EURACOALwas the Commissions unfetteredbelief in the future role of combinedheat and power (CHP). An earlydraft of the directive required CHPat new and refurbished power


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EC Berlin Fossil Fuels Forum

In May, EURACOAL members supported a European

Commission workshop on planning and authorisation

o surace coal mining. A wide variation in the

approach to authorising new mine projects was

reported in dierent Member States. Some countries

view coal mining as an important economic

activity and have put in place processes to ensure

that projects can proceed in a way that meets the

legitimate expectations o all parties, including

third parties who should be compensated or any

disruption that they suer.

In other countries, where there is no stated national

need or coal mining, the planning process is less

certain. Approvals can drag on or many years, withlegal challenges both rom those opposed to mining

and by project developers and with no certainty o

a successul outcome or the developer.

For EURACOAL, a defnitive statement rom the

Commission on the value o indigenous coal to EU

energy supply would be desirable. This might allow

some Member State governments to express more

clearly a national need or the exploitation o localenergy resources, such as coal and lignite. In this

respect, the conclusions o the 2010 Berlin Fossil

Fuels Forum plenary meeting are helpul because

they support the exploitation o indigenous ossil uel

resources, including coal.



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plants, priority dispatch of CHPand connection of power plantsto heat supply networks. MemberStates would have to devise nationalplans so that power plants areonly constructed near to industrial,commercial or residential heatloads. Such a requirement woulddamage the prospects for large-scale coal-fired generation in the EUand whilst mandatory CHP was notincluded in the proposed directivethat is now before Parliament, tabledamendments would bring it back in.

Unfortunately, there is nothingin the directive on the potentialfor upstream energy efficiencyimprovements at power plants.Yet, the draft impact assessmentmakes clear that there is hugepotential to improve the efficiency

of coal-fired power plants. In thisrespect, it is worth noting that, inApril, the Polish government passedan Act that will introduce a WhiteCertificate scheme to encourageenergy efficiency. Up to 20% ofthe certificates can be generatedby upstream energy efficiencyimprovements at power plants. Withthis in mind, EURACOAL proposedto the Commission that the focusof the directive should be shiftedaway from promoting CHP to the

promotion of upstream energyefficiency, however it is achieved.

In October, President Zeirepresented EURACOAL atthe Berlin Fossil Fuels Forummeeting where he made valuableinterventions that promoted ourclean coal strategy and respondedto the Commissions focus on bestpractices (see page 16).

The Second European Coal Days

took place in November, hosted byDr. Christian Ehler MEP of Germanyand Mr. Bogdan MarcinkiewiczMEP of Poland. A dinner debatein the prestigious BibliothqueSolvay was followed by a seriesof events and an exhibition in the

European Parliament. Once again,coals profile was raised within theEuropean institutions during thesuccessful Coal Days and some keypoints emerged:

Agreement that progress withCCS demonstration needs to beaccelerated, not only to secureEuropes energy future, but alsoto show global leadership. If CCSis not taken up in China and India,then the EUs climate protectiongoals will not be achieved.

Director General of Energy,Mr. Philip Lowe announced thatthe Commission would publish acommunication on CCS in the thirdquarter of 2012.

Mr. Lowe was sceptical about the

warning from Mr. Hans Ten Berg,Secretary-General of Eurelectric,that support for renewables at anycost and forever is not a sustainablepolicy.

At the high-level dialogueorganised by Dr. Ehler in theParliament, Commissioner forEnergy, Mr. Gnther Oettingersaid that clean coal technologiesare a good middle way, balancingenvironmental objectives with

affordability, and offeringtechnology export opportunities.

In 2011, the Commission had thedifficult task of drafting a coherentEnergy Roadmap 2050. It had tomarry many competing objectives,whilst reflecting some new realitieson nuclear power, energy prices andprogress with CCS. The roadmapreflects these realities by presentinga number of future scenarios,without expressing any preferences

on energy sources or technologies see the Energy Policy Committeereport and special section below.

Organisational changes within theEuropean Commission, made atthe end of 2011, mean that there is


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1 - In September 2011, RWE hosted a site visit to Garzweiler opencast lignite mine and the

nearby Niederauem power plant for Commission officials and Parliamentarians who learnt muchabout the coal and lignite industry from EURACOAL members.

no longer a dedicated Coal and OilUnit. Responsibilities for coal nowrest with a number of desk officers,spread across many units. However,co-ordination of coal policy remainsthe responsibility of one Unit Headwho EURACOAL will continueto liaise with on policy whilstdealing with others on new energytechnologies and clean coal, CO2capture and storage, coal marketsand international relations.

Finally, my thanks go to EURACOALmembers for their good co-operation and support in 2011and to my staff who deliveredmuch more than could have beenexpected from such a small team.Our move to a modern office at theend of 2011 rounded off an eventfulyear in Brussels.


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3 - Mr. Philip Lowe, Director-General for

Energy at the European Commission

addresses guests at a dinner debate hosted

by EURACOAL in the Bibliothque Solvay,

Brussels on 29 November 2011 part of theSecond European Coal Days in the European

Parliament.

4 - Mr. Bogdan Marcinkiewicz MEP (centre

back), Mr. Joseph Daul MEP, Chairman of

the European Peoples Party Group (front

right) and Dr. Christian Ehler MEP (right)at the opening ceremony of the Second

European Coal Days exhibition in the European

Parliament, Brussels, 30 November 2011.

5 - In October, the EURACOAL Secretary-

General was honoured to receive this gold

medal after delivering the 60th Robens Coal

Science Lecture to members of the British

Coal Utilisation Research Association at the

Institute of Physics in London.

.

2 - The publication of Coal industry across

Europe 2011 in October was the culmination of

a great effort by members and the secretariat.

A breakfast launch in the European Parliament

was well attended and a lively discussion withMEPs followed presentations by EURACOAL Vice

President Mr. Phil Garner (left) and our host Mr.

Jan Brezina MEP from the Czech Republic (right).


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Energy Policy CommitteeDr.-Ing. George Milojcic, Chairman

The Energy Policy Committeedeals with general energy policyand specific coal-related issues,particularly in connection withinitiatives of the EuropeanCommission and the decision-making processes of the EuropeanParliament and Council. As energypolicy is shaped under the shared

competence of the Europeaninstitutions and Member States, anexchange of views on energy-policytrends in Member States is crucial.The opinions of the Europeancoal industry on policy principlesand current issues are preparedby the committee and brought tothe attention of policymakers inBrussels and the Member States. In2011, the Energy Policy Committeemet on 16 March and on 22September in Brussels.

An important signal was sentby the European Council on 4February 2011, when PresidentBarroso underlined that the 20-20-20 targets still reflect the currentpolitical state-of-play in the EU.Environment policymakers andcertain NGOs pleaded to havethe EUs greenhouse gas (GHG)reduction target for 2020 raised to30%. Since a follow-up agreementto Kyoto is not imminent, evenafter the UNFCCC conference inDurban, and since more stringentclimate objectives would meanthe re-negotiation of MemberStates burden sharing, a changeto the targets for 2020 cannot beenvisaged at the moment. Othertopics have priority, such as theEUs response to the financial crisisand ensuring economic growth.

Commission initiatives in 2011focused mainly on the internalmarket and energy solidarity. The

Energy Policy Committee carefullyfollowed the Commissions activitieson a long-term energy strategy to2050. In the course of the year, aseries of discussions took place,

during which the coal industrypresented its position. The EnergyRoadmap 2050 communication andsupporting documents published inmid-December include importantstatements on what the Commissionwould like to focus on before 2020and how a long-term Europeanenergy strategy could be shaped

over the coming years.

The Commission repeatedly madeit clear before publication of theEnergy Roadmap 2050 that itaims to decarbonise the energysector and considers that drasticreductions in CO2 are necessaryacross the EU by 2050. Scenarioswere developed and politicalstrategies formulated on this basisin the roadmap. Unswervingly, theCommission continues to pursue its

pioneering role in the global climateresponse a position that receivesmuch support in the Parliament while refusing to develop a PlanB. As a political manoeuvre, thismay achieve goals, so long as itdoes not further burden Europesenergy and industrial sectors. Theloss of wealth and jobs throughcarbon leakage remains a realthreat. An unbalanced policy,possibly resulting in harmful andirreversible structural changes toindustry, must therefore be avoided,especially in the crucial energysector.

The EU objectives for 2020, i.e.the 20-20-20 targets, can be seenin this context as challenging butachievable. For the coal industry,modernisation, i.e. retrofittingexisting plants and building new,highly-efficient power stations,remains important. The desireddevelopment of renewableenergy sources places additional

requirements on the flexibility ofpower stations. Here, coal competeswith natural gas. The latesttechnical developments show thatcoal- and gas-fired power stationsare equally flexible.


21/40


The Commissions thinking onflexible and reliable energy-supplyoptions, not to mention fuelswitching from coal to gas in thepower sector, is important in thiscontext. In the coal industrysopinion, it is important here toconsider life-cycle emissions, i.e.GHG emissions from the production

of natural gas, from its transportthrough long pipelines and fromLNG liquefaction and regasificationterminals. Logically, CCS remainsimportant for both coal and gas.Within DG Energy, there is supportto improve CO2 capture techniquesand to focus on building a CO2transport and storage infrastructure.

EURACOAL is concerned bysome recent trends, for examplein the UK where the EU energy

and climate package is beingovertaken by national measures.The UK government White PaperSecure, affordable and low-carbonelectricity has to be questioned.Its policies are explicitly hostile tocoal and, if they were systematicallyimplemented, they would clearlyhave negative impacts on coal usein the UK. EURACOAL fears thatthis will set a bad example to othernations who seek to use coal morecleanly.


Energy Policy Committee

200

5 10 15 20 25 30 min

MW

1 Modern coal-fired plants are just as flexible as the latest gas-fired plants and can balance intermittent renewables such as wind and solar

with large and fast load changes - BoA = lignite-fired units with optimised plant technology

BoA 1 to 3

Maximum load 1,000 MW

Minimum load 500 MW

Maximum ramp rate +/- 30 MW/min

400

600

800

1,000

1,200

Gas-fired CCGT Lingen/Germany

Maximum load 2 x 440 MW

Minimum load 520*/260** MW


BoAplus

Maximum load 2 x 550 MW

Minimum load 350*/175** MW


* 2 boilers operating / ** 1 boiler operating

min. load **

min. load **

After 2011, a year of orientation anddiscussion of long-term policies, theCommission has now clearly defineda work programme for the comingyears in its Energy Roadmap 2050.For EURACOAL, this covers a widespectrum of topics and the energyand climate policy discussion inBrussels is sure to gain momentum.

An on-going topic for the EnergyPolicy Committee is EURACOALsparticipation in the Berlin FossilFuels Forum. This mainly concernsthe Working Groups that meetregularly in Brussels. An importantdate was the 7th plenary that tookplace on 24/25 October 2011 inBerlin. As in the past, EURACOALhad the opportunity to participatein two important sessions on CO2capture and storage and on good

practices in indigenous fossil fuelexploitation. The European CoalRound Tables initiated by Dr. EhlerMEP in the European Parliamentand the 2nd European Coal Daysduring the last week of November2011 were also important occasionsto present the thinking and analysisof the Energy Policy Committee.

The participation of EURACOALmembers in the Energy PolicyCommittee was again active in2011. Members high level ofcompetence and commitment wasthe basis of fruitful discussionsand altogether successful work,for which members are cordiallythanked.


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The most important issue addressedby the Environment Committeein 2011 was the on-going LargeCombustion Plants Best AvailableTechnology (BAT) revision process LCP BREF in short. This isimportant because the LargeCombustion Plants Directive (LCPD)and Industrial Emissions Directive(IED) both require BAT not entailingexcessive cost to be applied whichmeans that the Emission LimitValues (ELVs) in these Directivesmay be reduced further. Otherimportant issues on the horizonin 2011 included the upcomingrevisions of the GothenburgProtocol and the National EmissionsCeilings Directive (NECD).

It is important here to recognisethe inter-relationship of the various

emission control measures. Apartfrom the IED and the LCP BREFrevision process, revisions of theGothenburg Protocol and, followingthat, of the NECD, may result infurther tightening of emission limits.Although these revisions would notdirectly affect ELVs at individualplants, they may reduce overallemission ceilings in individualMember States, which maytherefore have the same effect. Therisk is of leap-frogging emissions

reduction requirements resulting inuncertainty, the potential need forrepeated investment and, overall,a difficult climate for investment.EURACOAL will work with itspartners, such as EURELECTRIC, toavoid or at worst minimise this risk.

The LCP BREF revision is conductedby the European IPPC Bureauand will assess BAT for emissionscontrol at large combustion plants.A wide range of parties is involvedand EURACOAL is well represented.Upstream and downstreamprocesses are excluded, hencethe transport and storage of CO

2

from CCS plants is not covered,but the revision will cover mercury.EURACOALs view on mercuryis that existing control measuresfor other pollutants, particularlyFGD plants, also reduce mercuryemissions and do so adequately.An Intergovernmental NegotiatingCommittee on mercury is looking toagree a legally binding instrument atthe UN level. A risk here is that ashfrom coal-fired power stations maybe regarded as a mercury waste

regardless of whether it actuallyposes a hazard. The implications ofsuch a classification would be veryserious and EURACOAL is engagedin work related to the process.

Issues raised by industry in theBREF kick-off meeting included theneed to define and exclude fromthe revision start-up and shut-downperiods. This is important as coal-fired plants in a number of MemberStates are operating, and will

increasingly operate, as mid-meritplant rather than on base load such flexibility is needed to balanceintermittent renewables. Secondly,because emissions vary greatly withsize of plant, industry has asked forcoal and lignite plants to be splitinto different size categories, andthis has been accepted.


Environment CommitteeMr. David Brewer, Chairman

A revision of the GothenburgProtocol is now under way. Asnegotiations are conducted atinternational level, and as it is notlimited to the European Union,EURACOAL cannot be involveddirectly and it will be necessaryto work with officials in nationalgovernments. There is as yet noofficial notification that work hascommenced on a revision of theNECD.

On other issues, the TransitionalNational Plan rules have now beenagreed for the implementationof the IED. The rules offer themaximum flexibility that EURACOALhad been seeking.

Implementation of the MiningWaste Directive is well under way in

Member States and any difficultiesare being overcome. But, there areEuropean Working Groups lookingat waste characterisation and theinspections, monitoring and closureregime, the outcome of which couldinterfere with the implementationprocess. It will be important toensure that these do not result inany onerous new requirements.

As ever, constant vigilance willbe required in 2012 to ensure

EURACOAL is engaged in emergingissues at an early stage.


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In 2011, the EURACOAL TechnicalResearch Committee (TRC) metthree times: on 23 February fora workshop in Essen, on 18/19May in Lige and on 6 December(Brussels). In addition to theseregular meetings, the chairmanand other TRC members wereheavily involved in a reviewexercise managed by the EuropeanCommission.

According to Article 38 of CouncilDecision 2008/376/EC of 29April 2008 on establishing theResearch Fund for Coal and Steel(RFCS), a monitoring exercise ofthe RFCS programme, includingan assessment of the expectedbenefits, is due every seven years.Work on the first exercise started inFebruary 2011 and a report will be

published by the end of 2013, basedon completed projects.

The exercise is being carried outby a committee composed of coaland steel experts appointed bythe European Commission. Thecoal sector is represented by fourexperts, including three members ofthe EURACOAL Technical ResearchCommittee. They are also involvedas rapporteurs for the monitoringreport and for the assessment

report.

The evaluation builds on nearly300 completed questionnairesreceived from Technical Groupexperts, project co-ordinators, R&Dmanagers and senior industrialists,each containing many commentsand useful suggestions forimprovements to the programmeimplementation. Starting with ascreening of 198 projects completedin the observation period, a sample

of 45 projects will be assessed inmore detail. An advanced versionof the draft monitoring reportwill be presented to the Coal andSteel Committee (COSCO) ofMember State representatives at itsmeeting on 26 April 2012; the draft

assessment report is due later in2012.

At the February workshop, 55project ideas were considered anddistilled into ten new proposals, inaddition to six existing proposalsready for resubmission. Proposalsresponded to priorities in the fieldof coal mining under the 2011 RFCScall:

increasing the efficiency ofmine production and developmentby utilising information andcommunication technologies (ICT)for improved process optimisation;

prediction and reduction ofthe long-term effects of thegeomechanical or hydrogeologicalaspects of mine design; and

control of underground gasemissions in operational minesand novel methods of mine climatecontrol.

In May, the prepared proposalswere subject to peer reviewby TRC members who thentook the opportunity to visitEcoTechnoPle Wallonie to witnesshigh-temperature, high-pressuregasification tests in progress.

The last meeting was heldimmediately prior to a scheduledmeeting of the RFCS Coal AdvisoryGroup. Topics covered included theoutcome of the 2011 RFCS proposalevaluation, carried out during weekcommencing 10 October, andprogress with the RFCS monitoringand assessment exercise.EURACOAL members scored wellin coal mining project proposals(Technical Group for Coal TGC1)

and consequently are involved in allfour projects supported in this area,either as co-ordinators or partners.The issue of unlimited liability innew contracts for RFCS projectswas also discussed, alongside theCommissions requirement for

project participants to hold projectmonies in interest-bearing accounts.EURACOAL sought and receivedguidance on both these issues fromthe Commission.

For the 2012 RFCS call, apreparatory workshop for those withan interest in mining engineeringproject proposals is scheduled for22/23 February 2012 in Marl, kindlyorganised by EVONIK. In additionEURACOAL member ISSeP in Ligewill revive a workshop to preparejoint projects on coal preparat ion,conversion and upgrading (TGC2),as well as coal combustion, cleanand efficient coal technologies andCO2 capture (TGC3), to be held inLige on 28 March 2012.

In the second half of 2011,

the Commission continued itspreparations for the next RTDFramework Programme, calledHorizon 2020. It will start in 2014and cover the period until 2020.The Commissions formal proposalswere adopted in late November.So far, the perspective for fossilfuel production and use is ratherlimited as the main emphasisof the programme is on climateprotection and consequently onrenewable energy sources. Unless

amended, the only possible areafor participation is through thedevelopment of competitive andenvironmentally safe technologiesfor CO2 capture, transport andstorage under the low-cost,low-carbon electricity supplyaction. The TRC will monitor futuredevelopments and EURACOALwill lobby for flexible and efficientbackup power generation to beincluded, alongside novel coalexploitation and conversion

projects.


Technical Research CommitteeDr.-Ing. Jrgen Czwalinna, Chairman


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Market CommitteeMr. Nigel Yaxley, Chairman

The Market Committee heldmeetings on 25 May and 16November in Brussels. Sharingup-to-date production and tradeinformation allows committeemembers to better understand coalflows in the EU and to reflect onhistoric price developments. Thanksto contributions from EURACOAL

members, notably VDKI, thecommittee again published twoMarket Reports in 2011. These areappreciated as a reliable source ofdata by the European Commissionand industry alike. Whilst the2011 figures reported below arepreliminary, they illustrate someclear trends.

The practice was continued ofinviting external speakers toaddress the Committee on matters

of interest or concern, and duringthe year Members were pleasedto welcome representatives of theEuropean Commission and theWorld Coal Association.

World Coal Market Developments

Preliminary figures for global hardcoal production show a historichigh of 6.7 billion tonnes of coal.Since 1990, coal production almostdoubled, with China accounting formost of this growth. The countrynow produces half of all global coal

production.

Seaborne hard coal trade in 2011rose by 32 million tonnes to total878 million tonnes: 653 milliontonnes of steam coal and 225million tonnes of coking coal.The most significant changes insteam coal trade were observed inIndonesia (+16 Mt), the US (+15 Mt)and Russia (+13 Mt).

The 10.1% rise in US exports was

a highlight of 2011, showing theflexibility of US producers andshippers, but also reflecting theweak domestic market for coal inthe US given that natural gas pricesfell below 3 US$/mmBTU by yearend. Alongside Colombia, the USwas once again a swing supplierinto the lacklustre Atlantic marketwhere the on-going eurozone crisisand growth in subsidised renewable

240

200

160

120

80

40

Jan 2005

USD/tonne(6,000 kcal/kg net)

1 Steam coal prices at ports in northwest Europe, 2005 - 2011Source: IHS McCloskey, NWE, CIF

Jan 2012Jan 2009 Jan 2011Jan 2007


25/40



Market Committee

generation dampened coal demand.Nevertheless, coal remainedcompetitive in Europe given stronggas prices (e.g. UK NBP spot priceswere 50-60 p/therm or 9.0-9.6 US$/mmBTU in 2011) and falling CO2prices (see below). With new coal-fired plants being commissioned inGermany and the Netherlands, plus

strong demand growth in Turkey,coal imports from the Atlanticmarket will likely grow in 2012. Theimpact of Germanys swift decisionto phase out nuclear may alsostrengthen coal demand.

In the booming Pacific market,China overtook Japan to becomethe worlds largest coal importer respectively importing 183 milliontonnes and 175 million tonnes.Japanese coal imports were weaker

by 5.1% in 2011 following Marchsdestructive earthquake and tsunamiwhich damaged over 7 GW of coal-fired power plants along with portand rail infrastructure. In India, astrong rupee boosted demand forsteam coal imports which reacheda new high of 85 million tonnes,in addition to 33 million tonnesof coking coal. Australia exported281 million tonnes of hard coal(including 148 million tonnes ofsteam coal), behind Indonesiawhose exports increased 11% toreach 323 million tonnes. Withfreight rates at very low levels,Asian buyers took advantage of thelow CV sub-bituminous coal on offerfrom Indonesia. By the end of 2011,loaded prices for coal in Australiawere higher than the delivered priceto the ARA ports of Amsterdam,Rotterdam and Antwerp, reflectingjust how much stronger the Pacificmarket has become comparedwith the Atlantic market. Althoughvolumes dropped in 2011, the coal

swaps market remained liquid andoffers both buyers and sellers ameans of hedging risk.

The Pacific and Atlantic marketswere once linked by South Africanexports which flowed into bothmarkets. However, South Africandeliveries to Europe have dwindledas the closer Indian market is nowmore attractive. This means thatColombia and Russia now determinethe linkage between the Pacific and

Atlantic markets, resulting in a farmore complex price relationship.

World crude steel production roseto a record 1,527 million tonnes in2011, an increase of 6.8% on 2010,with strong growth in Turkey, SouthKorea and Italy. Chinas output grew8.9%, cementing its position as theworlds largest producer with 45.5%of global output. Notable changesin the related coking coal marketwere lower exports from Australia

(-24 Mt), because of flooding inQueensland during the early partof 2011, and from Russia (-2 Mt),which were compensated for byhigher exports from, above all, theUS (+11 Mt) and Mongolia (+7 Mt)where overland coal exports toChina increased to 21 million tonnesof mainly coking coal.

European Coal Market

EU hard coal production in 2011slightly declined to 129.5 milliontonnes, whilst the lignite industryenjoyed an increase in output ofalmost 29 million tonnes acrossMember States to 425.6 milliontonnes. There was a notableincrease in Bulgarian lignite outputto 34.5 million tonnes (+27%),meeting demand from the recentlycommissioned 670 MW AES powerplant at Galabovo. In Romania,lignite production grew 15% to 32.0million tonnes. In some countries,such as in Germany where hard

coal mining will end in 2018 andin Spain, the decline in indigenoushard coal production was morethan matched by growth in coal


26/40



Market Committee

imports. Further information on theEuropean coal market can be foundin EURACOALs regular coal marketreports.

Coal Prices

Coal prices at northwest Europeanports peaked in the summer of

2008 before dropping significantlyon account of the global economiccrisis. Since then, prices have seena recovery to reach the relativelyhigh levels of 120-130 US$/t duringH1 2011, before falling during thesecond half of the year to 100 US$/tbecause of an unseasonably warmstart to the winter and hence abuild-up of stocks.

Spot prices for US low-volatilecoking coal averaged 280 US$/t

FOB in 2011, with prices lifted bythe tight Australian supply. Pricesare now mostly contracted on aquarterly basis, but an emergingspot market is becoming moreimportant. The weak US dollar

again made US coking coal importsattractive in Europe. Being traded inrelatively low quantities, the cokingcoal market will inevitably stayvolatile and unpredictable, oftenwith a delayed response, as wasobserved following the Queenslandfloods many customers will drawdown stocks when prices are high,

before negotiating new contractsonce prices have subsided.

Spot prices for coke remained veryhigh, reaching 500 US$/t CIF ARAduring H1 2011, but falling to 395US$/t by year end.

Freight Rates

Sea freight rates in generalremained very low in 2011, withshipping companies barely covering

their marginal operating costs. TheBaltic Dry Index hovered between1,000 and 2,000, compared withpeaks above 10,000 in 2007 and2008. Surplus fleet capacity andrising fuel costs led operators to

30

25

20

15

10

5

Jan 2005

/t CO2

2 Allowance prices under the EU Emissions Trading Scheme, 2005 - 2011Source: European Energy Exchange

Jan 2009Jan 2007 Jan 2008Jan 2006 Jan 2011Jan 2010 Jan 2011


27/40


experiment with slow-steaming onsome routes. Rates are likely toremain depressed in 2012 as newvessel deliveries are again forecastto exceed scrappages. Based on thecurrent order book, and assumingsome cancellations, the Capesizefleet could grow from 245 millionDWT to 275 million DWT in 2012.

Freight rates from South Africato ARA, which was once a veryimportant route, have fallen toaround 9 US$/t and are often nolonger correlated to the API2-API4spread. Indeed, during 2011 thisspread turned briefly negative,suggesting that coal was worthmore at Richards Bay than atEuropean ports.

Carbon Prices

Low and volatile allowance pricesunder the EU Emissions TradingScheme (ETS) were the subjectof much debate during 2011,especially towards the end of theyear when prices fell to around 8/tCO2. Whilst these low pricesreflect that emission reductiontargets are being met, they offerlittle or no incentive for operators

or new entrants to invest in low-carbon technologies such as CO2capture and storage. This has led tocalls by the European Commission,European Parliament, NGOs andeven some industrialists for a one-off intervention in the marketto boost prices. This would beunwelcome and would discredit

the scheme as an efficient market-based instrument to reach emission-reduction objectives that have beenagreed at the highest political level.

Phase I of the ETS ran for a three-year period from 2005 to 2007.Prices collapsed close to zerowhen the market assessed thatthere would be an oversupply ofallowances. At the start of Phase IIin January 2008, prices recoveredand peaked at around 28/tCO2 in

mid-2008, only to collapse againas the global economic crisis and areduction in demand by industrialsectors saw companies sell theirsurplus allowances. Prices fell toas low as 8/tCO2 and althoughthey recovered to around 15/tCO2for much of 2009 and 2010, theyweakened again during the courseof 2011 to new lows.


Market Committee


28/40


ENERGY ROADMAP 2050

A Coal Industry Response

The European Commission Energy Roadmap 2050 forms part of the EUs strategy to movetowards a low-carbon economy by 2050 under the flagship initiative for a resource-efficientEurope. The roadmap is best understood as a political document that shows how a substantialdecarbonisation of the energy sector might be achieved. Indeed, the low-carbon goal takespriority over any serious consideration of energy security and economic competitiveness. Inthis respect, it cannot be viewed as an impartial assessment of what future energy supplyoptions would be in the EUs best interests.

By marrying some plausible assumptions with other less plausible ones, the Commission

crafts a number of scenarios each of which could deliver massive reductions in greenhousegas (GHG) emissions over the coming decades. Three analytical models were used by theNational Technical University of Athens to develop the scenarios. The PRIMES model balancedenergy supply with demand for key sectors of the economy and determined energy pricesusing a partial equilibrium simulation of market clearing in the EU. A general equilibrium model(GEM-E3) was used to determine GDP and economic added value by sector, whilst a stochasticmodel of global fossil fuel price formation (PROMETHEUS) set import prices. Much skill mustbe needed to produce meaningful and sensible results from these complex models. Giventheir use in public policy making, it would be clearly desirable to make them open source sothat third parties could verify and validate the published results. Although the models usedare far from transparent, this should not detract from the Commissions key conclusion: manylow-carbon technology pathways are available. In fact, the cost estimates do not favour anyparticular pathway. This suggests that governments should establish technology-neutral and

fuel-neutral energy policy frameworks which allow markets to deliver the desired large-scaledeployment of low-emission technologies. Governments will continue to have a role in theearly stage deployment of many new technologies, but the Energy Roadmap 2050 shows thatpicking winners for commercial deployment should not be attempted by any government.

Key Points from the Roadmap

An 80% to 95% reduction in EU GHG emissions below 1990 levels by 2050, if otherdeveloped countries make comparable commitments current policies would lead to a 41%reduction in the EU.

Targets for 2030 the Commission will prepare a new strategy in 2012 to increase the shareof renewables post 2020 and set milestones for CO2 capture and storage (CCS), with possiblepolicy changes to address funding of demonstration plants, CO

2infrastructure and legal issues

associated with cross-border CO2 transport.

An EU-wide framework to boost security of energy supply and solidarity by creatingcertainty and stability for investment. This applies especially to renewables support which theCommission says would be less costly if Member States followed a common approach.

Five Decarbonisation Scenarios to 2050

Five scenarios illustrate possible ways to decarbonise the energy system while ensuringsecurity of supply, solidarity and competitiveness. Although none is likely to materialise, theCommission presents them as no-regrets options that justify a long-term technology-neutralframework.

High energy efficiency much depends on changing consumer behaviour and introducingmore radical measure on, for example, urban and spatial planning and combined heat andpower (CHP)

Diversified supply technologies market-based solution with no support for specifictechnologies (assumes public acceptance of nuclear and CCS)


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High renewables 97% renewables in electricity consumption, with costly transmission andstorage, including renewable power imported from outside the EU

Delayed CCS and a higher share of nuclear

Low nuclear 32% of electricity from plants with CCS in 2050 (2% in 2030) with no newnuclear plants

Under these scenarios, primary energy demand would fall by between 32% and 41% by 2050

from its 2005/06 peak as energy efficiency measures succeed, largely because of the highenergy prices assumed. The share of electricity in final energy demand almost doubles by 2050as it is used more and more for transport and heating. Average electricity prices would behighest under the high renewables scenario ( 199/MWh), but other scenarios show increasesof between 34% and 44% compared with 2005 ( 109/MWh). Overall, households and SMEsspend a greater part of their expenditure on energy.

Total energy system costs are expected to rise from around 10.5% of GDP today to over 14%of GDP in 2050, with higher capital outlays. Although Table 1 shows little variation betweenthe costs of the five scenarios, all are significantly greater than today more than double inabsolute terms. Despite these higher costs, GDP is assumed to grow at a healthy 1.7% p.a.(c.f. 0.58% p.a. 2005-2010). If economic growth is weaker, energy system costs would thenbecome an enormous burden for everyone.

Coals share in EU electricity generation drops from around 28% today to between 2.1%and 13.1% in 2050 in the five decarbonisation scenarios, with corresponding falls in theshare of coal in the primary energy mix. One of the reasons for this decline in the EUs mostcompetitive energy source for electricity generation is the assumption made on the capitalcost of new power plants. The Commission assumes that coal-fired plants with CCS are over50% more costly than recent analysis by the International Energy Agency. Such a disparityhighlights one of the many uncertainties in the Commissions scenario analysis.

2005

1 Energy system costs for the five decarbonisation scenarios in Energy Roadmap 2050 compared with 2005.

Note: Cumulative system costs exclude ETS auction payments and disutilit y (e.g. a less comfortable temperature at home).

Even if recycled in the economy, these are costs borne by energy consumers, so are included here in the average annual system costs.

High energy efficiency

Diversified supply technologies

High renewables

Delayed CCS

Low nuclear

2050

Average annual system costs

2011-2050, (2008) billions

Cumulative system costs

as a percentage of GDP

c.1 200

2 788

2 735

2 795

2 773

2 772

14.56%

14.11%

14.42%

14.06%

14.21%

10.50%

ENERGY ROADMAP 2050



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140

120

100

80

60

40

20

1980 1990 2020 2050

USD (2008)/bbl

2 Fossil fuel prices in the reference scenario (USD(2008)/bbl) - Coal prices rise to USD(2008) 147/t (6,000 kcal/kg) by 2050 in the reference

scenario oil and gas prices are assumed to rise more steeply, to USD(2008) 127/bbl in the case of oil. In the decarbonisation scenarios, coal

prices eventually fall to USD(2008) 92/t by 2050 because of lower demand.

Oil

Gas (NCV)

Coal

2000 2010 2030 2040

85

53

23

88

62

29

106

77

33

127

98

34

ENERGY ROADMAP 2050


EURACOAL Response

The five decarbonisation scenarios presented by the Commission reflect the political aspirationto reduce GHG emissions by 80% to 95% in 2050. By not expressing a preference for anyparticular scenario, the Commission is sending a clear signal to Member States that nationalpolitical preferences on energy mixes will be decisive. This is a welcome outcome.

EURACOAL supports the European Councils conclusions of 4 February 2011 that, the EUneeds to ensure safe, secure, sustainable and affordable energy that contributes to Europes

competitiveness. These are the cornerstones of a sound energy policy. In this respect,EURACOAL welcomes the Commissions observation that, Coal in the EU adds to a diversifiedenergy portfolio and contributes to security of supply. Yet, coal use is projected to halve by2030 and fall by over 90% in 2050, depending on the uptake of CCS. EURACOAL finds thisprojected fall in coal use to be unrealistic given that coal remains a cost-competitive fuel inthe Commissions fuel price assumptions, as shown in Figure 2 for imported coal. Moreover,we note that this coal price forecast comes from PROMETHEUS a world energy price model and does not reflect the price benefits of indigenous coal production. Users of indigenousenergy face lower price risks than users of imported coal: prices are more certain and subjectto less volatility. Thus, coal should be even more competitive than suggested by the PRIMESmodel. Whilst the GEM-E3 model should highlight the economic impacts of the differentscenarios, we are surprised that the Commission raises no particular concern over the EUsgrowing energy import dependence. All scenarios point to a general trend of rising energy

prices, so it should surely be a strategic aim to maximise the economic rent retained in the EUby using indigenous energy resources whenever these are competitive.


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ENERGY ROADMAP 2050


A high carbon price is assumed under all five decarbonisation scenarios, growing to between 234/tCO2 and 310/tCO2 in 2050. It is, of course, impossible to predict future carbonprices: unlike natural resources, where the long-run marginal cost of their extraction can give aproxy for price, carbon markets are an artificial construct and subject to political interference.However, EURACOAL cannot understand why such high carbon prices are assumed, becausewe already have carbon abatement technologies today that can deliver large-scale reductionsat far lower costs (e.g. 40/tCO2 to 80/tCO2 in the case of CCS). The high carbon price is notplausible and would lead to the untenable increase in energy prices shown in Figure 3.

On energy efficiency, the Commission anticipates a doubling in the rate of annual averageimprovement from 1.4% (1990-2005) to 2.5% or even to 2.7% in the high-energy efficiencyscenario. It is hard to imagine this taking place without major structural changes to the EUsindustrial base and EURACOAL is concerned that more of Europes energy-intensive industrieswill relocate outside of the EU.

Oil, natural gas, coal, nuclear and renewables figure in each of the scenarios, albeit in differentproportions, thus allowing Member States to pursue different energy mixes, assuming awell-connected internal market that reduces the risks of supply disruptions. EURACOAL fullysupports the Commissions proposal to look at different electricity market models so thatflexible and back-up generation receives a proper return on investment.

The roadmap focuses almost uniquely on the EUs goal of decarbonising energy supply

and largely neglects the other key objectives of energy security and competiveness. Here,EURACOAL has always promoted diversity. More generally, the assumption that the EU canafford an ever-rising energy bill has to be challenged. If rising energy prices strangle economicgrowth and tightening carbon targets destroy many of the 255 000 jobs in the coal industry,then the Commissions analysis offers little in terms of prosperity. Maximising the value ofthe EUs indigenous coal and lignite reserves should, EURACOAL believes, be a Commission

1,200

1,000

800

600

400

200

3 Assumed coal and CO2 prices in theEnergy Roadmap 2050 point to an implausibly

expensive cost of carbon abatement in the five decarbonisation scenarios, much higher than

the cost of CO2 capture and storage - a CO2 emission factor of 3.21 t CO2/tce is assumed for

coal.

2020 2030 2040 2050

Coal

100 /tce

15-25 25-63 87-190 234-310 CO2 prices

/CO2


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Coal oers a number o advantages which can oten

complement the pros and cons o other energy sources:

Coal underpins security o energy supply and competitiveness.

The cheapest virtual store o electricity is a stockpile o coal at

a coal-fred power station.

The exibility o coal-fred generation matches the exibility

o gas and both can balance the variable output rom

renewables.

The transition to a low-emission economy has many acets:

improving the efciency o coal-fred power generation

delivers early and certain results.

Longer term, CO2 capture and storage (CCS) can be applied to

all ossil uels. Delaying the deployment o CCS and allowing

the power utility sector to become ever-more dependent on

natural gas gives short-term emission reductions in the EU at

the expense o long-term diversity and security.

EU policy must be holistic: the environmental perormance othe whole supply chain needs to be examined or energy and

goods imported rom outside the EU. For example, importing

renewable energy only makes sense in the unlikely event that

exporting countries have a surplus, having met their own

energy needs. It would be perverse i they increased their use

o ossil uels to ree up renewable energy or export to the

lucrative EU market.

ENERGY ROADMAP 2050

A Clean Coal Strategy



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priority. As well as the direct wealth creation from coal- and lignite-supply chains, theirexploitation provides competitive energy for all industrial sectors.

There are risks associated with unilateral climate action by the EU. Indeed, the roadmapexpresses concern about a loss of competitiveness and carbon leakage if the EU acts alone,The opportunities for trade and cooperation will require a level-playing field beyond theEuropean borders. To avoid carbon leakage, EURACOAL supports the argument made bythe Commission that certain industrial sectors should continue to benefit from free carbonemission allowances based on benchmarks.

The roadmap notes that, regardless of global action:

1. The EU must, in any case, invest to replace its ageing energy system.2. The scenarios presented would attract investment into the EU.3. The EU can gain early mover advantage.4. Import dependence can be reduced.5. There are co-benefits of reduced air pollution and better health.

EURACOAL notes that there can be no certainty that all these outcomes will actually occur orthat their value will justify the cost of unilateral action by the EU.

The Commissions Plan B, if there is no global climate agreement, leads to border taxes

and damaging trade wars. In its final report, the independent advisory group appointed bythe Commission asks that the EU makes clear whether its unilateral CO2 reduction targetsare unconditional and so trump all other objectives. If so, they recommend that measuresto ensure security and protect competitiveness are laid out, taking into account life-cycleanalysis. The group challenges the EUs climate policy, with its focus only on Member StatesCO2 emissions, noting the EUs rising carbon footprint as it imports ever more goods andservices from beyond its borders. EURACOAL recommends that the Commission addressesthis good advice and other important questions raised by the advisory group.

Conclusion

The Commissions openness on the future energy pathway for the EU is welcome. Nuclearenergy, renewable energy sources and the efficient use of fossil fuels, with the wide

deployment of CCS post 2030, offer a diversity that will allow Member States flexibility in theirenergy mixes. Indeed, EU energy policy must reflect national differences and build on thepositive aspects of the EUs internal market for energy. It is in such a market place that coaldemonstrates its cost competitiveness and will continue to do so for many years to come. It issurprising therefore that only two sentences are devoted to coal in the roadmap. Another fossilfuel natural gas is promoted as critical for the transformation of the energy system. TheCommission must choose whether it believes in a free internal market, where energy sourcescompete fairly and environmental targets are met (see pages 32 and 34), or in a regulatedenergy market with frequent intervention to ensure the right outcome. The growth inrenewable electricity generation in particular, driven by different national targets and differentfeed-in tariff structures, presents a real challenge to a properly functioning internal market.

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ENERGY ROADMAP 2050

A Clean Coal Strategy (cont.)

EURACOAL proposes a three-step clean coal strategy that not only reects

the fndings o the Energy Roadmap 2050, but also oers a global response

to the climate challenge in place o an EU-centric response.

A three-step clean coal strategy:

Introduce state-o-the-art technology across the EU coal-fred generationsector to boost efciency, enhance exibility and reduce emissions.

Develop the next generation o high-efciency, exible technologies

or coal-fred electricity generation.

Demonstrate and deploy CO2 capture, transport and storage as less

integrated and thereore less complex activities at coal-fred power

stations around the world, in tandem with CCS or other uels and other

sectors.

R&D will be important to bring orward efciency improvements and

reduce the cost o CCS. EURACOAL supports the Commissions conclusion

that, Higher public and private investments in R&D and technological

innovation are crucial in speeding-up the commercialisation o all low-

carbon technologies. To this end, it is vital that the EU Strategic Energy

Technology Plan (SET-Plan) and related initiatives by industry are properly

supported by Member States and rom the EU budget. Advanced ossil uelproduction, advanced ossil power generation and CCS are all important

activities under the SET-Plan. EURACOAL agrees with the roadmaps

conclusion on the need to better prepare or the deployment o CCS,

CO2 inrastructure, that does not currently exist, will be required and

planning should be started soon. Today, it is the sheer complexity o

large integrated projects that is slowing progress, alongside a lack o public

awareness o the costs and implications o eective action against climatechange. Establishing an inrastructure would allow CCS projects to proceed

by relieving capture project developers o the need to establish acceptable

transport routes and storage sites.



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ENERGY ROADMAP 2050


The Energy Roadmap 2050 communication is the start of a two-year process that theCommission hopes will lead to a new energy policy framework, with targets for 2030. Itexplores possibilities, but does not set out any concrete measures or proposals. These willcome later, as detailed in the Citizens Summary, starting with communications on the internalmarket (2012 Q2), renewable energy (2012 Q2), CCS (2012 Q3), energy technologies (2012Q3), energy efficiency (2013 Q1) and proposals on nuclear safety (2012 Q3). EURACOAL looksforward to playing its part in the promised stakeholder dialogue during 2012 and 2013, beforethe Commission builds on the four cornerstones of its energy policy for the decades after

2020: competitiveness, security of supply, safety and sustainability.

To conclude, the Energy Roadmap 2050 is a step in an on-going political process. Crucially,Member States must decide what efforts they are willing to take in these times of economiccrisis and to what extent they want to adopt detailed EU objectives on, for example, energyefficiency, renewables and co-ordinated support measures for low-carbon technologies andthe necessary back-up power generation. Given energys key economic role, it seems thatthe Competitiveness Council should be as interested as the Energy Council in the on-goingdevelopment of a roadmap that is set to have a great influence on the EUs future industrialcompetitiveness.


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Members & Activities

EURACOALs mandate

The European Association forCoal and Lignite is the umbrellaorganisation of the European coalindustry. The associations andcompanies representing the coalindustries of 20 countries worktogether in EURACOAL. Coal

producers, importers, traders andconsumers all have seats and votesin EURACOAL.

By integrating the countriesof eastern and central Europe,and welcoming Members fromneighbouring countries outside theEuropean Union, EURACOAL hasanticipated political developmentstaking place in Europe. TheAssociation, evolved from CECSO(the European Solid Fuels

Association) after the expiry of theTreaty establishing the EuropeanCoal and Steel Community (ECSCTreaty) in 2002.

EURACOALs mission is tohighlight the importance of coalscontribution to security of energysupply within the EU, to energyprice stability, to added economicvalue and to environmentalprotection. EURACOAL seeks tobe an active communicator, with

the aim of creating an appropriateframework within which theEuropean coal industry and coalconsumers can operate.

Around 30% of the power generatedin the EU-27 is coal-based. Steelproducers and other energy-intensive industries all needlarge quantities of energy. Coal istherefore an important and reliablesource of energy in its own rightand will remain a vital component

of EU energy supply.

EURACOALs activities are entirelygeared towards the interests of itsMembers. This includes the wholeprocess chain, beginning with coalextraction, marketing and transport,

right through to coal use at powerstations, in the steel industry, inother industrial and commercialsectors and by private households.Coal research plays an importantrole here to optimise processes.

EURACOAL is the voice of thecoal industry in Brussels, actively

involved in the political process andalways a proponent of coal as a vitalcomponent in a balanced Europeanenergy mix. EURACOALs activitiesare directed towards:

keeping Members informed onall coal-relevant matters at theEU level,

creating a platform forMembers to hold discussionsand exchange opinions,

voicing the interests of the coalindustry at European level,

creating favourable political andregulatory conditions, especiallyvia the European Parliament, theCommission and the Council,

exchanging information andworking with the Commissionand Parliament,

participating in the EuropeanCommissions Social Dialoguewith industry,

supporting activities of theEuropean Economic and SocialCommittee,

offering Members a platform todevelop joint R&D projects,

co-operating with otherpolitically relevant associations

and interest groups in Brusselsto boost awareness of coal andthe industrys interests, and

public relations work topromote coal.

EURACOAL is a Brussels-basedEuropean association, responsiveto the considerable powers ofthe EU institutions, especiallythe European Parliament and theCommission. It represents theinterests of its Members in itsdealings with these institutions,participates in expert discussions

and helps shape public opinion.EURACOALs committees are thecornerstone of the Association.They elaborate positions on energy,environment and research policy, aswell as on coal markets. While EUdecisions are primarily determinedby the Brussels-based institutions,the Council and therefore theMember States also have far-reaching powers. The contributionthat EURACOAL Members make toenergy and environmental policy

at national level is therefore justas important as the collectiverepresentation of their interestsin Brussels. When looked at thisway, EURACOAL is not just aplatform for voicing the collectiveinterests of Members, but a forumfor information exchange whereMembers can explore issues ofconcern to the coal industries inindividual Member States.

Major Activities of EURACOAL

The EUs general objectives - toimplement the single internalmarket, to increase the Communityseconomic strength, to protectconsumers and to achievereasonable standards in respectof environmental protection have all created a wide scope forlegislative initiatives, and much ofthis impacts on the coal industry.The liberalisation of power and gasmarkets, the introduction of EU ruleson subsidies and the adoption ofmeasures aimed at strengtheningcommercial businesses byintroducing competitive marketstructures all open up goodopportunities for coal but are alsofraught with risks. The coal industry



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Members & Activities

welcomes

euracoal annual report 2011l

Documents