Committee Reports > List of Committees > Joint > 1984 > Committee on the Secondary Legislation of the European Communities (4th Committee) > Report No. 01 - Community Aid for Solid Fuel Production

REPORT

A. INTRODUCTION

Proposals Examined

1. The Joint Committee has examined the following Commission documents in relation to aid for the production of solid fuels which form an integral part of the Community’s multiannual action programme for energy and energy research:

Commission Communication to the Council on a working programme on solid fuels — [COM(83) 54 final]

Community measures to promote consumption of solid fuel — [SEC(83) 1614], and

Proposal for a Council Regulation (EEC) concerning financial support of the Community in favour of industries producing solid fuels — [COM(83) 447 final].

2. The proposal for a Council Regulation is based on Article 235 of the EEC Treaty which enables the Council to take appropriate measures for the attainment of one of the objectives of the Community where the Treaty has not provided the necessary powers.

3. The proposals have been examined for the Joint Committee by its Sub-Committee on Economic, Commercial and Financial Affairs under the Chairmanship of Deputy Sylvester Barrett. The Joint Committee is indebted to Deputy Barrett and his Sub-Committee for their work. The Joint Committee was facilitated in its consideration of the proposals by memoranda from the ESB, Bord na Mona, An Foras Forbartha, Consolidated Holdings Limited, the Confederation of Irish Industry and the Department of Energy. The Joint Committee wishes to express its sincere thanks to the bodies who supplied it with memoranda or otherwise made their views known to it.

Background to Commission Proposals

4. Until the 1950’s coal was the major source of energy in Ireland and Western Europe. In 1950 coal met 75 per cent. of Community energy needs, oil 10 per cent. The position changed when the availability of relatively cheap Middle East oil displaced the dominant position of coal. With the prospect of regular and cheap supplies of oil, industry switched from coal as a source of energy throughout Europe. Between 1958 and 1973 the amount of Community energy derived from coal dropped from about 50 to about 23 per cent; the consumption of oil and natural gas rose to more than 70 per cent. In Ireland during the same period the amount of energy derived from solid fuels (coal and peat) dropped from 62 to 26 per cent and oil consumption rose to 73 per cent. The political crisis in the Middle East in 1973-74 led to a quadrupling of oil prices and insecurity of supplies. This led to a rethink by the Community, and energy policy since 1973 has been aimed at reducing dependence on imported oil. The high price of oil has made alternative sources of energy, such as coal and peat, competitive once more. The Community responded with schemes to develop alternative sources of energy and on the broader front the International Energy Agency (IEA) was set up in 1974 under the auspices of OECD to co-ordinate the approach to the oil crisis and the developing world energy situation. The results of these measures was to increase production from indigenous Community energy sources and reduce dependence on imported oil. The slowing down of economic growth in the Community contracted the energy market and imposed its own discipline on the importation of oil and attention was diverted to conservation. The Iran/Iraq war of 1979-80 brought renewed anxiety about oil supplies and provided a potent stimulus for the accelerated development of alternative sources of energy. World-wide studies revealed that large economically recoverable reserves of coal were available and that they could supply a significant part of future energy needs.

5. By 1980 the significance of solid fuels as a major energy source was being widely recognised. Following a meeting of Community energy Ministers in Copenhagen in 1982 the basis for the Community’s solid fuels policy was established. The proposals examined by the Committee form part of this policy. However, the Community’s solid fuels’ policy at that stage was directed towards investment in coal production, but following a joint approach by Ireland and Greece at Commission level and in the Council of Ministers it was agreed that peat and brown coal (lignite) provided a secure and economic source of energy supplies for power stations and the household heating market and that they were very important for the energy economies of both countries, and to a lesser extent, Germany. It was, accordingly, decided to include peat and brown coal in a balanced and coherent solid fuels Community programme.

Solid Fuel Resources in Ireland

6. Two main types of coal exist in Ireland: anthracite and semi-bituminous coal. The anthracites are found in the Leinster and Slieve Ardagh coalfields and the semi-bituminous coals in the Connaught coalfield. A consultancy report commissioned by the Department of Energy in 1980 on Irish coal resources revealed that there are about 23 million tonnes of coal resources in Ireland which could prove to be economically recoverable. In the Leinster coalfield it is estimated that there are about 8.9 million tonnes of recoverable anthracite. However, coal seams in Ireland are relatively thin and would require considerable capital investment to develop. The semi-bituminous coals are regarded as suitable for use in electricity power stations with fluidised-bed combustion systems or as a blend for the new station at Moneypoint, County Clare.

7. The only known resources of brown coal (lignite) are to be found in Northern Ireland under Lough Neagh. Ireland has almost one million hectares of peatland. Bord na Mona have to-date acquired some 80,000 hectares of bog and have twenty-three works at various locations. During the 1982 season total production by the Board was about one million tonnes of oil equivalent. In addition to Bord na Mona there are numerous other producers most of whom produce only for their own or local needs. The best estimate of production from all such sources was of the same order as that of the Bord na Mona total.

The major part of Bord na Mona’s efforts have been concentrated on what is known as raised-type bog, and all large size raised-type bogs which can be economically developed at present by known mechanical means have been or are being exploited. In the past the working rule was that bogs of less than 200 hectares were not regarded by Bord na Mona as exploitable by them but the picture in this regard has changed radically in recent years and Bord na Mona are now devoting a considerable part of their effort towards exploiting the smaller raised-type bogs, most of which are located in the remoter parts of the country. The total extent of these smaller raised-type bogs, which vary in size from 20 to 200 hectares, is about 20,000 hectares and it is inevitable that high development and operating costs in exploiting this fuel resource will arise.

The other very extensive bog areas in Ireland are comprised of what is known as blanket bog. In general, such bogs are shallow, located in difficult terrain and subject to very high annual rainfall: development and operating costs are therefore much higher than on raised-type bogs.

B. COMMUNITY AID FOR SOLID FUEL PRODUCTION

Community’s Legislative Proposals

8. The Community’s proposed legislative measures are contained in document COM(83) 447 final which is a proposal for a Council Regulation on support for investment in Community coal production and for peat and brown coal production (in Ireland and Greece) and financial assistance towards the clearance of huge pithead coal stocks mainly in the UK.

9. To support investment in the production sector 300 million ECUs were entered in the 1984 Community budget. The action is designed for a period of five years; it will serve to promote productive investment to modernise and rationalise Community production of hard coal, brown coal and peat ultimately leading to an increase in Community mining productivity and harvesting. Financial aid for these fuels would necessitate the formulation of long-term domestic development programmes. Community support would be limited to 25 per cent of the eligible investment costs over the period 1984-1988.

Implications of Proposals for Ireland

10. The principal sector to be affected by the Commission proposals is the area of electricity generation. The ESB in their submission to the Joint Committee pointed out that their dependence on imported fuel oil has dropped from a peak of 73 per cent in 1979 to its current level of 30 per cent through its diversification to indigenous natural gas as a primary energy source and it expects that this comparably low level of oil dependance will be maintained through the use of coal from 1985 onwards when the major electricity generating station at Moneypoint. County Clare comes on stream. This scheme will create a very significant demand for coal and the Board is apprehensive about the development of support systems for un-economic coal production in the Community while abundant supplies at lower rates are readily available throughout the world, mainly from the United States and Poland. The Board feels that if it were to use Community coal for electricity generation, even with the proposed Community subsidy to adapt and modernise production, the net effect would be more expensive electricity for the consumer. This would, in the Board’s view, have the detrimental effect of driving up unit costs in Irish industry. A similar argument is advanced by the Board in relation to the extension of peat production in Ireland for electricity generation. It maintains that if the peat produced were to be used for electricity generation the balance of the necessary capital investment, together with all of the operational costs after allowing for the proposed Community subsidy, would have to be remunerated by the consumer.

11. In their submission to the Joint Committee Bord na Mona generally welcomed the Commission’s proposals and feels that it should avail of the grant-aid on offer. The Board draws special attention to the particular problems of peat production, such as long lead-in periods, its unattractiveness for commercial venture capital and the risks inherent in fluctuations in output from year to year due to changing weather conditions. The time-lag from initiation of capital outlay to revenue from sales is of the order of seven years. Grant-aid is particularly needed by the Board to assist with their third development programme which will require a further IR£87 million to complete. The cost of servicing existing capital is a heavy drain on its resources and the increasing requirements for research and development for technological and product improvement are adding a further burden to its capital provision. In relation to the Commission’s financial proposals the Board would like to see provision for long-term loans and favourable scheduling of repayment of principal together with interest subsidies. The Board also advocates financial encouragement for conversion of oil-fired industrial plant to the use of solid fuels, the preparation of solid fuels for uses other than in power stations and the use of solid fuels in district heating schemes.

12. The Commission considers that stock-holding is not a problem in the peat industry and, by implication, does not constitute a financial burden. Bord na Mona cannot, in the light of experience, concur in this view and would like to have the provisions of the Commission proposals extended to take account of this activity.

13. In its submission to the Joint Committee, Consolidated Holdings Limited cautions about any action that could lead to higher prices for solid fuels and questions whether Community coal will be competitive following the proposed aid to the mining industry. The Company points out that there seems to be no control proposed on overall coal production and that there is no provision for guaranteeing a fair distribution of production in the event of an interference with third country supplies leading to a shortage of solid fuels within the Community. However, even with a guarantee of assured supplies the Company doubts if buyers would be prepared to pay more than a marginal premium for such security. The Community in its assessment of the limitations on its reserves of economically workable coal acknowledge that its increasing requirements will have to be met by importing from external sources necessitating an external supply policy. Consolidated Holdings Limited are, however, apprehensive that the outcome of the Community’s legislative proposals to subsidise Community production will be “protection from third country sources”.

14. In its submission to the Joint Committee, An Foras Forbartha points out that this country has been actively promoting switching to the use of solid fuels in industry and public buildings where this can be shown to be economic, and that the Department of Energy has supported this in certain cases by use of demonstration grants. In regard to district heating schemes, An Foras considers that this would only be effective in a situation where there is a positive policy to support and develop such schemes.

In relation to research, development and demonstration An Foras feels that the Commission proposals should not exclude the domestic sector as research, development and demonstration is also necessary at the domestic level for automation of fuel and ash handling, combustion efficiency, use of energy storage and control systems for small scale solid fuel fired systems. This is important as a high proportion of solid fuel consumption in this country is in the domestic sector, e.g. some 74 per cent of coal and 89 per cent of peat was directly consumed in 1982. The inclusion of peat production in the Commission’s proposals for a solid fuels policy is welcomed by An Foras.

C. VIEWS OF THE JOINT COMMITTEE

15. The Joint Committee welcomes the inclusion of a policy to develop the production of solid fuels in the Community’s energy programme and, in general, the specific proposals contained in the draft Regulation. The adverse effects of this country’s over-reliance on imported oil has been forcefully brought home during the oil crisis of the 1970s. The Joint Committee would like to see investment in research and development aimed at establishing the viability of indigenous coal resources, particularly the anthracite reserves in the Leinster coalfield. It is satisfied that other coal mines in the country can produce low grade coal suitable to fuel fluidised-bed combustion systems. This low grade coal can also be mixed with higher grade coal for industrial processes such as cement production. There is already a noticeable switch to solid fuel in this country mainly in the domestic area and when the Moneypoint, County Clare electricity generating station is fed into the national grid a considerable market for coal will exist here.

The Joint Committee is not unsympathetic to the case made by the ESB about the high cost of Community coal while abundant supplies are available at considerably lower costs from third countries. Nevertheless, it feels that every effort should be made in this country to generate more electricity from coal and thus release valuable energy sources, such as natural gas, for more economic purposes such as industrial and household use. The Joint Committee is advised that the thermal value of coal is higher than that of oil and that coal is the most economic method of electricity generation in Ireland. These salient considerations, coupled with the fact that indigenous semi-bituminous coals are suitable as a blend to fuel such undertakings as Moneypoint, must enhance the argument in favour of greater use of coal in electricity generation. The Joint Committee feels that the demand for coal could be raised to the point where significant quantities of native resources could be brought into economic production with the aid of the Community grant. The strategic importance of home sources of primary energy cannot be over-emphasised and their significance for job creation and the balance of payments must be stressed.

16. Article 6 (1) of the draft Regulation sets out the production levels which must be attained by undertakings producing coal in order to qualify for Community aid. These levels are fixed at “an average annual underground output of at least 380 kg per man/hour or, in the case of new capacities, [where the] planned output is at least 600 kg per man/hour”. The Joint Committee feels that, having regard to the particular difficulties associated with coal mining in Ireland, these production targets are set far too high and would have the effect of virtually excluding all Irish undertakings from the Community aid proposed. It strongly recommends that the production targets be reduced to realistic levels attainable in the Irish context.

17. Following the investigation by the Commission of Bord na Mona’s operations with a view to the inclusion of peat in the Community’s action programme, the Commission came to the conclusion that peat is a secure and economically viable energy source in Ireland especially for power stations, and that reserves are considerable and will be utilisable for a long period. The Joint Committee feels that this argument must be carefully considered in relation to electricity generation, particularly in view of the heavy investment by Bord na Mona in its third development programme and the availability of Community aid for modernising the productive capacity of peat.

Ireland is richly endowed with peatlands a good deal of which, particularly the smaller raised-type bogs, are located in the remoter parts of the country. The Joint Committee commends the efforts of Bord na Mona in their endeavour to exploit these resources. Bearing in mind that every extra three tonnes of peat produced means one tonne less of oil imported, a compelling case is established for maximising peat production. Another argument in favour of increasing peat production is the fact that total production can be disposed of profitably. The expert knowledge of the Board in the harvesting of peat, in which area it has done pioneering work, together with the Community subsidy on offer, albeit limited, should provide an added impetus for increasing production significantly in the years ahead.

18. The Joint Committee would like the Commission to address itself to the question of control over levels of Community coal production and the guaranteeing of fair distribution of production in the event of a cutoff of external sources of supply, which were raised by Consolidated Holdings Limited. An assurance on the latter point could well have a determining influence on the approach of coal importers. However, the Joint Committee accepts the contention of the Company that buyers are unlikely to pay more than a marginal premium in return for security of Community supplies. Accordingly, the Community must ensure the competitiveness of its coal production even if this means an improvement in the financial incentives on offer.

19. The Joint Committee supports the proposals of Bord na Mona and An Foras Forbartha in relation to the use of solid fuels in industry and public buildings instead of oil, and the use of solid fuels for district heating schemes. It also supports the proposals of An Foras Forbartha in relation to research, development and demonstration in the domestic sector and hopes that these issues will be given serious consideration by the Commission.

Timescale for Adoption of Community Proposals

20. The Joint Committee understands that progress on the adoption of the proposals in the draft Resolution could be slow due to reservations held by some Member States. However, as Ireland is due to take over the Presidency of the Council in July next, the Joint Committee hopes that the Community energy proposals for the restructuring of the solid fuels’ sector can be edged forward steadily.

D. CONCLUSION

21. The development of a solid fuels strategy is particularly important for a small island nation such as Ireland. While the Committee does not under-estimate the pressures of the market place and the problems that have to be faced bringing relatively small scattered native resources into economic production, nevertheless the strategic value of having such energy resources available in the event of unsettled or insecure world conditions must be weighed carefully. Military conflicts far removed from this country during the 1970s have caused serious industrial and commercial dislocation in a very short space of time due to the interruption of the supply of the energy source upon which Ireland had become over-reliant. Although oil is now in abundant supply its attractiveness to this country is significantly diminished due to the unfavourable conversion rate of the Irish pound against the US dollar.

The Joint Committee is not unmindful of the ESB’s statutory duty to its domestic and industrial consumers and its obligation to keep electricity costs to a minimum as part of the national drive to wind down inflation and to keep our industrial exports competitive. However, the Joint Committee is hopeful that, with Community and national aid, indigenous solid fuel resources will find a significant market outlet in electricity production. It supports wholeheartedly the view of Bord na Mona that stock-holding should be included in the Community proposals. Fluctuations from one year to another due to the vagaries of the Irish climate mean that the Board have a particular financial burden to carry in this area in order to supply the market in an orderly manner and ensure continuity of supplies. The Joint Committee is also in favour of the Board’s suggestions for long-term loans and favourable repayment conditions and hopes that the Commission will seriously consider these matters. It also supports the Board’s contention that Community aid should be available for conversion of oil-fired industrial plant to the use of solid fuels and the use of solid fuels in district heating schemes. It notes with satisfaction a gradual shift to the former process, for instance in creameries in various parts of the country.

Concern for the environment is a subject that is being increasingly voiced at Community level and the implications of Community policy in this area, particularly the control of acid rain caused by sulphur dioxide emissions from major industrial undertakings, may well have far reaching financial implications for Ireland. This is another good reason for giving serious consideration to the greater use of peat as a primary energy source in electricity production as it has a very low sulphur content (typically 0.3 per cent).

In relation to the lignite deposits in Northern Ireland, the Joint Committee feels that the development of these resources in conjunction with the coal reserves in the Connaught Coalfield could be mutually beneficial and hopes that this suggestion will be carefully considered by those concerned.

22. Finally the Joint Committee is particularly concerned with the erosion of our industrial base by the present prolonged economic recession and the consequent rise in unemployment. In these circumstances it feels that every avenue should be explored to exploit natural resources, such as peat and coal, to improve employment opportunities and to establish viable industries based on these resources. In their investigation of Community peat resources the Commission found that in some Member States, particularly Ireland, peat resources are important in their own right and also as instruments for viable regional development purposes. The Joint Committee appreciates the daunting task that could be presented in bringing marginal native coal mines into economic production but is optimistic that, with realistic Community aid and national aid, the challenge can be met successfully.

(Signed) MAURICE MANNING,

Vice-Chairman of the Joint Committee.

8th February, 1984.