Can coal subsidies be phased out in Europe?

Implications: Germany, Spain and Hungary have coal production costs of more than twice the world market for coal and are dependent upon State Aid. Czech Republic, Poland, Slovakia and UK are more or less competitive on the World market, and are either un-subsidised or only receive a low level of subsidy for new investment or to mitigate inherited liabilities. New accession countries such as Romania and Bulgaria have to apply by end 2007 if they need subsidy for their mines. Many European coal produces have lived with subsidy for years, and may not be able to respond to future price pressures.

Analysis:  

Global coal prices have remained firm and above US$60/tonne during the past three years and the forward curve for globally traded coal delivered to Europe currently remains firm at around US$70/tonne until 2010.
International coal prices delivered to Europe traded between US$30 to US$40/tonne between 1999 and 2003.
The globally traded physical market for coal was around 550 million tonnes in 2006 and is set to reach 800 million tonnes by 2010.
Delivered market prices for coal are an amalgam of production and sea and rail transport costs, that are influenced by other commodity price fluctuations. If oil product prices start to fall, pressure will be on coal producers and transporters to lower costs. If European coal prices start to fall, the European producers will become increasingly uncompetitive and will demand more subsidy. In these circumstances, the European Commission may be forced to change their view that State Aid subsidies should end in 2010.
Environmental Lobby group Greenpeace accuses the European Commission of "dithering and delay" over phasing out subsidies for coal, and says subsidies for polluting technologies should be diverted to renewable energy sources. Whist this will put pressure on the Commission they be unable to resist the demand for subsidy from inefficient producers to maintain employment levels.