The new carbon price floor could leave a billion tonnes of high quality Welsh coal stranded underground, writes Tony Lodge
In the early 1960s, Harold Macmillan famously said: “There are three bodies no sensible man directly challenges: the Roman Catholic Church, the Brigade of Guards and the National Union of Mineworkers.”
That the Prime Minister of the day felt it right to put those who dug coal on the same plinth as Britain’s second biggest religious congregation and the then half-a-million strong military was a reflection of the grip the politics of coal had on the country.
Over the last century, Britain’s coal industry has faced the most eventful and politically charged landscape of any of the traditional big heavy industries.
Production in Britain peaked in 1913 at 287 million tonnes. Since this date, the decline in demand and output can be linked with key moments in Britain’s 20th century social and economic development.
Winston Churchill’s decision to convert the Royal Navy from a fleet dependent on Welsh steam coal to oil from 1912 was the first significant snub.
In the 1950s and 60s, the large-scale switch to electric and diesel locomotives on the rail network, and the end of steam by 1968, again led to a large traditional customer for British-mined coal disappearing.
Combined with the emergence of nuclear power, the Clean Air Act and the discovery of North Sea oil in 1965, coal’s markets were being squeezed from every direction. When North Sea gas first came ashore in 1967, coal production was falling quickly.
Today, Welsh-mined coal faces its biggest ever challenge, from a new Government tax that could cause a collapse in its markets within the next eight years – and therefore its very existence, just before new clean coal plants and new coal hungry customers are in place.
The most recent change which directly challenged coal’s biggest market share was the decision in the early 1990s to allow natural gas to be burned to generate electricity in new gas-fired power stations, such as the large new plant at Pembroke.
Since 1990, the ‘dash for gas’ has led to Britain, in just over 20 years, becoming dependent on gas for the majority of electricity generation. Therein lies both coal’s challenge and its new opportunity.
Britain is now over-dependent on imported gas for the generation of electricity. This is set to dramatically increase, and it will have a major impact on electricity bills as the electricity price becomes dictated by the gas price.
During 2011 wholesale gas prices rose by 40% and more households are falling into fuel poverty. But the Government appears blind to this problem.
Since the Coalition was elected in May 2010, it has approved a huge 7,000MW of new gas-fired power plant (the equivalent of five large coal plants), with more than 3,000MW of gas awaiting the green light. Nothing is being done to diversify our generation base, with new nuclear plants up to 10 years away at the earliest.
Importantly, the Government is still relying on coal to keep the lights on, and in February it was responsible for producing nearly 50% of UK electricity.
The new threat to coal is the Government’s carbon price floor. Today, British miners are responsible for nearly 19 million tonnes of production a year, with Welsh output running at just under two million tonnes.
This industry meets more than a third of total UK coal demand and output has remained notably stable in recent years with a net increase in 2010. The rest is imported by ship.
Most coal is used by the large coal-fired power stations like Aberthaw and Drax, but the carbon price floor could force the reduced use, or possible closure, of such plants as early as 2020, and with them the UK coal industry as its main markets disappear.
This would lead to up to one billion tonnes of identified and economically recoverable coal reserves becoming stranded and unrecoverable. Wales alone has some of the highest quality anthracite and coking coal reserves in the world but these could be abandoned if future mining prospects like Margam are cancelled and existing projects end.
So why is this new tax a real threat to the future of mining?
The new carbon price floor will heavily tax all carbon emissions from fossil fuel power stations from 2013. It will start at £16 a tonne of CO2 in 2013 and rise to £30 a tonne in 2020 and then steeply to £70 a tonne in 2030.
This will mean that it will make running older coal plants uneconomic, thus resulting in premature closures. The market for British-mined coal could then quickly contract.
The new tax will be coal’s biggest challenge. As such, wouldn’t it be ironic if Britain starts opening new clean coal power stations in the mid-2020s, and the country which was once described as an island built on coal is no longer able to get at its own valuable energy reserves and instead relies on imports?
Tony Lodge is a research fellow at the Centre for Policy Studies and is author of The Atomic Clock – Why the Coalition is gambling with Britain’s energy policy, published by the Centre for Policy Studies