From Energy Union to a carbon-neutral Europe via a just transition

Solar PV panels at Sokolov lignite mine (collage), Czechia © Martin Lisner |

An energy transition is coming.  No one is quite sure what precise shape it will take as some elements are missing, such as diurnal and seasonal energy storage.  The transition is being driven by technological change and political will.  In the media, the environmental impacts of growing energy use feature prominently, especially in light of reports by the UN Intergovernmental Panel on Climate Change (IPCC) which warn of “profound consequences for ecosystems and people” if man-made global warming is not limited to well below 2°C above pre-industrial levels.  Other, related issues attract less attention, such as energy security, and the costs and time needed for a revolution on the scale of the Industrial Revolution.

Figure 1 – The UN IPCC states that a sustainable energy transition needs to address the climate challenge with an equitable global response that eradicates poverty. (Source: IPCC, 2018)

The vision

In the UNFCCC Paris Agreement of 2015, world leaders set the 2°C guardrail on global warming and agreed that each country would deliver according to its ability.  The Katowice Rulebook of 2018 outlines reporting standards which will provide a picture of the overall level of ambition.  Parties to the UNFCCC are encouraged to inform citizens and explain what progress is being made to avert a climate catastrophe.

Box 1 – Energy Union

A communication on Energy Union was published by the European Commission in February 2015.  It heralded a fundamental transformation of Europe’s energy system, promising a sustainable, low-carbon and climate-friendly economy.  To reach this goal means moving away from an economy driven by fossil fuels;  although with a strategy for imported fossil gas.  The Energy Union proposal consists of five main pillars:

■    energy security, solidarity and trust;
■    a fully integrated European energy market;
■    energy efficiency contributing to moderation of demand;
■    decarbonising the economy;  and
■    research, innovation and competitiveness.

The fourth pillar is based on an EU-wide carbon market under the EU emissions trading system (ETS), with the vision of making Europe the number one in renewable energy sources.

Energy systems have never been static, always changing and modernising with, for example, larger, more efficient power generation units, more robust grids and evermore imaginative ways to use electricity.  The way coal is used has changed – from the burning of raw coal to the controlled combustion and gasification processes of today, with modern pollution control technologies to further reduce environmental impacts.  The new political vision is of a carbon-neutral energy system that relies on renewable energy sources, smart grids, decentralised power production and the active participation of prosumers through the digitalisation of energy services.  These are the aims of Energy Union in the EU.

The challenge

Energy transition is complex and to achieve it on the scale needed will require the wide deployment of new technologies.

The EU emissions trading system (ETS) should remain the only instrument used to drive down CO2 emissions from the power sector:  it delivers a politically agreed emission reduction target.  By 2050, the power sector and other energy-intensive industries must have reduced their CO2 emissions by around 90% compared with 2005, and no new emission allowances will be auctioned after 2058.  Following recent political decisions to tighten the ETS, the price of emission allowances surged and the cheapest fuel suppliers (i.e. coal and lignite mining companies – see Figure 2) and power utilities now struggle to deliver the cheapest electricity to consumers.  Such moves have damaged the ETS as a reliable and predictable policy instrument.

Figure 2 – Oil, gas and coal prices in the EU since 1990 – compared on an energy basis, € per tonne of coal equivalent (Sources: IEA databases, BAFA in BP, 2019 and IHS, 2019)

Figure 3 – GHG emission reduction pathways in the EU, 1990-2050 showing the range of scenarios reported by the European Commission in its long-term strategic vision for a climate-neutral economy (Sources: European Commission, 2018, IEA databases and EURACOAL estimates for CO2 emissions from coal use based on industry trends)

Box 2 – EU climate strategy to 2050: a clean planet for all

In November 2018, the European Commission published its new vision for reducing greenhouse gas (GHG) emissions to achieve a carbon-neutral European Union by 2050.  The long-term strategy for a climate-neutral economy would require joint action by member states in seven strategic areas:

■    energy efficiency;
■    deployment of renewables;
■    clean, safe and connected mobility;
■    competitive industry and a circular economy;
■    energy infrastructure and interconnections;
■    bio-economy and natural carbon sinks;  and
■    carbon capture and storage to address remaining emissions.

Member states were invited to submit draft National Climate and Energy Plans by the end of 2018.  These continue to be reviewed and refined so that the EU’s climate and energy targets for 2030 and 2050 can be met through the aggregated efforts of member states.

Carbon neutrality by mid-century is a challenge, even for progressive regions like the European Union.  It will require substantial changes not only to the energy system, but also to the way we all live:  what food we eat and how it is produced, packaged and transported;  how we travel and whether we can fly or drive;  what fuels we use to keep warm;  and where we live.  Cities are changing in response to the transition – from the deep renovation of old buildings to make them energy efficient, through new smart buildings and low-energy lighting, to roads that limit the space for cars in favour of bicycles and buses.

With the right impetus, change can come quickly.  Mobile or cell phone subscribers grew from just a few in 1990 to an estimated 5.4 billion in 2020;  69% of the global population willingly pays for a communication system that existed only in sci-fi forty years ago.  The climate challenge also requires global solutions, with similar ambitions everywhere.  However, when it comes to energy supply, not all countries have the same possibilities.

The response

The coal sector has invested heavily in environmental technologies such as flue gas desulphurisation (FGD) for SO2 and selective catalytic reduction for NOx.  The fall in pollutant emissions has been impressive – by between 60% and 90% since 1990.  In the European Union, CO2 emissions from the coal sector fell from 1990 to 2016 by an astonishing 47%, helping to meet the EU’s ambitious climate targets.  Now, the circular economy concept can be taken to a new level, not just using ash for cement making and FGD gypsum for plasterboard, but closing the carbon cycle.  Much work is in progress to capture CO2 and convert it using renewable energy into useful products such as basic chemicals and plastics, or as replacements for oil-based fuels.  During the transition, coal should be used in the cleanest possible ways.  This means continued technical research on current issues and also on alternative uses of coal for a carbon-neutral era.

Figure 4 – CO2 emissions from fuel combustion by fuel type in the EU-28, 1990-2016 (Source: IEA, 2018)

While it is true that the coal industry is in decline in some member states, this is merely the continuation of a long-term trend that began decades ago.  There are member states that will stop using coal in the next few years.  For them, switching to fossil gas is relatively easy and not disruptive.  In other member states, with a continued high dependence on coal (as well as oil shale and peat), the switch is not as straightforward.  They will still need coal in their energy portfolios for decades to come.  The switch away from coal needs to be supported with major investments in new energy infrastructure which will increase national debts.

The total additional cost of transition, over and above business-as-usual, is estimated by the European Commission to be €175 billion to €290 billion each year out to 2050 (COM(2018) 773).  This would achieve net-zero emissions at a cost of up to US$10 trillion – more than €500 each year for every man, woman and child in the EU.

Figure 5 – EU coal, crude oil and fossil gas production, 1990-2018 (Source: IEA databases)

The cost of transition is not shared uniformly across the EU.  For example, in 2016, €57 billion was spent in support of renewable power generation (Figures 6 and 11), or over €100 per person.  This subsidy added 17.60 €/MWh to the average cost of all EU electricity.  Germany paid the most for renewables:  €24 billion to subsidise one quarter of its power production, adding 37.67 €/MWh to the cost of all electricity consumed – more than its wholesale value.  Not all countries can afford to invest so heavily in renewables, especially as conventional plants must also be kept operating as backup.

Figure 6 – RES electricity support per unit of gross electricity, 2016 (Source: CEER, 2018)

“Energy transition is a costly process and it will differ between particular EU countries, reflecting the different starting points of each member state.  That is why it is crucial to have the freedom to define the timeframe as well as tools and instruments necessary to carry it out in a fair and sustainable way.”

Energy Summit Declaration, Warsaw, October 2019

The social dimension

Around the world, 862 million people do not have access to electricity and 2 651 million are without clean cooking fuels (IEA, 2019a).  In the European Union, despite efforts to reduce economic disparity, the prosperity map is unequal when viewed along the east-west, and north-south axes.  Average salaries can be five times lower in some member states compared with others for nominally similar work.  This discrepancy reflects the wide range of per capita GDP in member states, even on a purchasing power parity basis.  It is often the less wealthy eastern and south-eastern member states who are most dependent on coal.

Figure 7 -Inequality across European Union regions as shown by per capita GDP in NUTS 2 regions, 2017 (purchasing power standards, EU average = 100) (Source: Eurostat databases nama_10r_2gdp, nama_10r_3popgdp, nama_10_gdp and nama_10_pe, last update 28.06.2019)

The policy push towards carbon neutrality places coal mining and coal power companies in the less wealthy member states in a particularly difficult position.  Unlike other industrial enterprises, they are first and foremost local companies serving local markets.  Whatever the cost, they must remain in place to supply essential energy and electricity until viable alternatives become available.  For them, relocation outside of the EU is not an option.

Figure 8 – Share of coal in the energy mix for EU electricity generation, 2017 (Source:  Eurostat database nrg_bal_peh, last update 25.06.2019) n.b. coal includes coke oven / BF gas, peat* and oil shale**

If coal power utilities were not burdened with expensive CO2 allowances (a c.100% tax for lignite producers), they could be in position to diversify their activities:  switching to other fuels or entering new industrial markets that require similar skill sets.  However, diversification needs legal certainty and the availability of funds to invest.

There is much talk of a “just transition”, leaving nobody behind;  coal miners are promised workplaces after coal is phased out.  It will take time to restore land and attract investors to establish new activities in the coal regions.  The “green economy”, though it promises new jobs, is not well developed in these regions.  Therefore, it would be wise to include coal companies in any discussions on structural change in the regions as they can contribute and offer solutions – some of a bridging nature, others more permanent.

“The European mining and energy sector is the source of a value chain which should be actively included in this transition – therefore, the transformation we need is one that prevents impoverishment and social instability of the mining regions and incentivises innovation and investment.”

Energy Summit Declaration, Warsaw, October 2019

Box 3 – European Green Deal

In July 2019, the President-elect of the European Commission presented her 2019-2024 political agenda to the European Parliament.  In a radical departure from free-market economics, a Green Deal is proposed that will affect all areas of life in Europe.  By March 2020, the Commission will propose:

■    a 50% GHG reduction target by 2030;
■    the first climate-neutral continent by 2050;
■    an extension of the EU ETS to cover maritime, traffic and construction;
■    a Carbon Border Tax to avoid carbon leakage;
■    a review of the Energy Taxation Directive;
■    a Circular Economy Action Plan and decarbonisation of energy-intensive industries;
■    a zero-pollution ambition (e.g. air and water quality, industrial emissions and plastics);
■    a Biodiversity Strategy for 2030;
■    a Farm-to-Fork Strategy for sustainable food;
■    a European Climate Pact for the regions, local communities, civil society, industry and schools;
■    a new Just Transition Fund so that nobody in any region is left behind, with targeted support to industrial, coal and energy-intensive regions and energy islands;
■    a ten-year, €1 trillion Sustainable Europe Investment Plan led by the European Investment Bank.

A large majority of member states have already endorsed the EU objective of climate neutrality by 2050.


Figure 9 – Solidarity and Just Transition Silesia Declaration

To this end, the European coal sector supports the European Commission’s Coal Regions in Transition Platform initiative – being actively involved from the initial proposal to participating in a fully-fledged interest group with hundreds of stakeholders.  The World Bank, the European Commission and the Energy Community are also engaged in establishing a similar coal platform for the Western Balkans and Ukraine.

RWE Neurath lignite-fired power station, Grevenbroich, North Rhine-Westphalia, Germany © Industryandtravel |

A just transition

The term “just transition” has been embraced by the European Commission, trade unions, and environmental NGOs who call for the “fair” treatment of workers during what they see as the necessary and inevitable de‑industrialisation of society in order to save the planet for future generations.

During the energy transition, some sectors are expected to shrink and hundreds of thousands of jobs will disappear.  The role of the European Commission is not only to present a vision for the EU, but also to secure this vision in a way that avoids social unrest and the extinction of economic activity in those regions of Europe which depend on fossil fuels and heavy industry.  More generally, across Europe, there is a risk associated with rising energy prices.  The issues of energy poverty and industrial competitiveness have to be addressed.

At the UNFCCC COP24 conference in December 2018, the Solidarity and Just Transition Silesia Declaration was signed by fifty-six heads of state.  The declaration demands that no one be left behind during the energy transition.  In the long term, the implementation of a solidarity-based transition will help garner and maintain public support for policies to reduce emissions.  In turn, this should enable the successful implementation of a transition which is a prerequisite for achieving global climate policy objectives.

The €5 billion Just Transition Fund, as called for by the European Parliament in November 2018, will surely not be enough to cover the costs of energy transition in the coal regions.  However, the European Commission proposes using the existing Structural Funds and Cohesion Fund to support the transition.  With such support, the coal regions can look forward to a bright, carbon-neutral future.