Climate change: will coronavirus hasten the demise of Poland’s coal?

In early June, nearly two months after coronavirus began sweeping through Silesia’s coal mines, Poland’s government ordered a three-week production halt at 12 pits in a belated bid to curb the outbreak. Yet rather than applauding an effort to protect workers, union leaders fired off a furious letter demanding that the decision be reversed.

It was not just the fact that six of the mines had not recorded cases of the virus among miners that angered union bosses. Such a shutdown, they argued, would also bring PGG, Poland’s biggest coal mining group and the employer of roughly 40,000 miners, to the brink of collapse.

“In my opinion, [this] was the germ of an attempt to liquidate some mines under the pretext of coronavirus,” says Dominik Kolorz, head of a regional branch of the trade union Solidarity, and one of the letter’s authors. “But our quick reaction thwarted this effort.”

Polish President Andrzej Duda, centre, was elected this month on a strong pro-mining platform  © Andrzej Grygiel/EPA-EFE

Government officials have repeatedly denied that they intend to use the pandemic as an excuse to cut jobs in the struggling industry which employs 80,000 people, and the mines in question all reopened earlier this month. But the spat was a harbinger of the battle over the future of the sector that will have profound implications both for Poland’s economy and for the EU’s ambitious climate goals.

For much of the 20th century, coal was seen as the guarantor of Polish prosperity. Until the 1980s, the central European nation was one of the world’s top five producers. Even last year, it drew 74 per cent of its electricity from the black fuel. No EU state burnt more hard coal. And only Germany burnt more lignite, the most polluting grade of coal.

Screening tests at the Ziemowit coal pit in Ledziny, south Poland, where coronavirus has hit some mining communities © Andrzej Grygiel/EPA-EFE

Viewed from Brussels, where the European Commission wants to make climate change the centrepiece of its agenda for the next five years, Poland’s huge coal industry is one of the biggest obstacles. Leaving aside Germany, Poland now generates more energy from coal than the rest of the EU nations combined.

But as Europe has tightened its environmental rules, the coal industry has become an increasing burden on both Poland’s public finances and the wider economy. In recent years, Poland’s mines have lurched from crisis to crisis. And the state-owned energy companies that rely on them have been hit by losses.

Bar chart of EU27 coal-fired electricity generation (terawatt hours) showing Poland depends on coal production

The pandemic has compounded those problems. As Poland went into lockdown to stem the virus’s spread, overall energy use fell 5 per cent in the first half of the year compared with the same period in 2019, according to Ember, an energy think-tank. Energy from coal, however, fell even faster, dropping 12 per cent as expensive electricity from ageing coal plants was squeezed out by cheaper, and greener, alternatives.

The decline will reverse as the economy recovers. But the episode has given renewed urgency to a question that successive governments have long avoided: how, and when, the EU’s sixth-biggest economy will wean itself off coal.

“We need to carry out the transformation of our energy sector while we still have some room to manoeuvre,” says Wojciech Dabrowski, chief executive of PGE, Poland’s biggest energy utility. “Failing to take the necessary decisions won’t improve the situation of energy producers. All it will do is leave us searching for last minute solutions at a time when our options are already very limited.”

As reserves have been depleted, miners have had to dig deeper, making the cost of coal more expensive © Bartek Sadowski/Bloomberg

Missing the moment

To some extent, the woes of Poland’s mines are home grown. As coal reserves have been depleted, miners have had to dig deeper, making each tonne of coal more expensive. Yet state-owned mines have failed to adapt to changing conditions. A scathing report by Poland’s supreme audit office into PGG, which was formed in 2016 in the most recent attempt to rescue the sector, found that even as productivity in its mines had fallen by 2 per cent, average salaries had been raised by 13 per cent.

“PGG did not take advantage of an opportune moment to lay the foundations for running a profitable mining business, including in weaker economic conditions,” the audit office said.

Much of the pressure, however, has come from the EU’s ever tighter rules to protect the environment. The emissions trading scheme, which forces companies to pay for their CO2 emissions, has made energy production based on coal increasingly expensive. Tougher rules around capacity market payments, which give energy groups an additional revenue stream alongside funds from power generation, and tightening industrial emissions standards, will only ratchet up the pressure. On top of this, the growing reluctance of banks to finance companies involved in coal has made it hard for Poland’s energy groups to secure financing for coal, and even for projects they invest in that are not related to coal.

Sierpien’80 trade union members protest against imports of foreign coal to Poland, which have weaken the domestic coal market © Andrzej Grygiel/EPA-EFE

In recent months, the results of these forces have begun to show. In January, the government announced that it would build a huge central depot to house the surplus of coal that has piled up, as prices have been increasingly been undercut by cheaper imports. In June, the state-run groups behind a plan to build a new coal-fired power plant in Ostroleka conceded that it would instead be based on gas, after they failed to secure external financing.

“What we are seeing now is the result of these market shifts and years and years of neglect,” says Krzysztof Bolesta, a Polish energy expert. “Every expert in Europe realised that the EU’s climate policy was going to change the European power market. But Poland just froze any changes. Now we are seeing the consequences. Push has finally come to shove.”

Belchatow power station owned by PGE, Poland’s largest energy utility, which has been hit by steep writedowns linked to its coal assets  © Bartek Sadowski/Bloomberg

Quest for security

Even after it became clear that the tide had turned against coal, Poland’s ruling Law and Justice party, which came to power in 2015, continued to resist calls to set out a plan for an exit from the fossil fuel. Two years ago, as the world descended on Katowice, the former centre of the country’s coal industry, to thrash out a plan for how to limit global warming, Poland’s president Andrzej Duda paid a visit to a miners’ festival where he promised that he would never allow anyone to “murder” Polish mining.

Even though the EU is aiming to go carbon neutral by 2050, Poland’s latest energy and climate plan, submitted to the EU in December, predicted that coal would still account for 28 per cent of the country’s electricity production in 2040.

One reason for this stance is energy security. Deeply distrustful of the Kremlin’s use of gas supplies as a geopolitical tool in Ukraine and elsewhere, successive Polish governments have long viewed coal as a guarantee of energy independence. But like its predecessors, Law and Justice has also been wary of riling miners’ unions. These still wield considerable influence, particular in the Silesian heartlands of Poland’s coal industry in the south of the country, where generation after generation has worked underground, and where many fear that the move away from coal will deal a fatal blow to the region’s economy.

“You need to remember that in these mining settlements . . . life revolved around the mine: cultural centres, cinemas, shops, everything was connected to the mine. When the mine dies, everything around it dies, too,” says Rafal Jedwabny, an official at the union Sierpien 80, who works in the Murcki-Staszic mine in Katowice.

“When the Wieczorek mine was closed, I saw with my own eyes the last ton of coal leaving the mine. People were standing there and crying. Miners, former employees, their families — they were emotionally attached to it. It was nearly 200 years old.”

Chart showing that Germany’s coal production has fallen faster than Poland’s. Coal-fired electricity generation (terawatt hours – hard coal and lignite)

Mining leaders acknowledge that both economic and social trends are moving against coal. But they are vehemently opposed to any attempt to accelerate its exit. “If [minister of state assets Jacek] Sasin or [prime minister Mateusz] Morawiecki have the courage to announce a decision to liquidate five, eight or 10 active mines then all I can say is: congratulations for your courage,” says Boguslaw Zietek, head of Sierpien 80, warning that such a decision would spark huge protests.

“It would be pure craziness, political suicide. Not because people here don’t understand certain processes, not because they are against the EU or ecology, but because they would be put against the wall, in a situation with no escape.”

Warsaw faces mounting pressure from the EU and environmentalists to reduce its coal capacity for climate reasons  © Rafal Guz/EPA-EFE

‘No future for coal and lignite’

Despite the unions’ resistance, there are signs that the pressure on the government to overhaul the sector may finally be becoming to a head. A surge in cheaper coal imports — much of which are from Russia — have begun to undercut the claims the coal is a guarantor of energy security. The funds on offer from the EU to support the green transition also hold out the prospect of some support for coal regions — although the money available was cut as part of the horse-trading at last week’s EU summit.

On top of this, the situation at Poland’s state-controlled energy groups is becoming critical. Last year, several racked up big losses. The worst hit was PGE, which posted a 3.9bn zloty net loss after a 7.5bn zloty writedown linked to its coal-fired plants in Belchatow and Turow. But others are also suffering: PGG lost 427m zloty, according to Polish media reports. And Tauron, another state-controlled energy group, also slipped into the red after a 1.03bn zloty writedown.

After months of pressure, PGG is due to present a plan to unions on Tuesday that will include the restructuring of some mines and temporary pay cuts for workers. And following a proposal from PGE, the government is also considering a plan to spin off the state-controlled energy groups’ coal assets into a new entity owned entirely by the state. This, says Mr Dabrowski, would allow Poland’s energy groups to concentrate their investments on clean energy, and make it easier for them to win cheaper financing from international lenders.

Some observers think that the plan to spin off coal assets could be a crucial step towards moving away from coal, and analogous to the way Germany split up its power companies four years ago. “Even a few months back, no one would have believed that this is possible, because it goes against the interests of the mining sector,” says Mr Bolesta. “If it happens, it’s basically the first step, and a very firm one, towards making a coal exit in the power sector. That’s a huge thing, and would of course have a huge spillover towards the mining sector.”

Others are more sceptical, not least because key questions, such as what will happen to the coal assets in the new entity, who will assume their debts, and whether Poland will be able to provide state aid to the new group, remain unanswered.

In 2040, nearly a third of Poland’s electricity production could still come from coal according to its current trajectory © Bartek Sadowski/Bloomberg

“It’s a chance for the energy companies to get rid of coal and become more competitive, but the question is what does the government wants to do with coal assets,” says Ilona Jedrasik, from ClientEarth, an environmental group. “It’s not clear if the government wants to use the plan to keep coal artificially alive for a long time, somehow subsiding it under the table, as the plan for coal’s phase-out is not yet on the table.”

The danger, however, is that if Poland’s government is not sufficiently ambitious, the market will force its hand. In a stark interview with the Polish newspaper Dziennik Gazeta Prawna two weeks ago, Mr Dabrowski warned that radical decisions and a plan for Poland’s mining and energy sectors were needed, and that PGE could find itself facing collapse in as little as 18 months if no action were taken. “We don’t follow any green ideology, it is pure economics that is forcing us towards transformation,” he told the paper.

Jastrzebska Coal Company miners clash with the police during a protest against their management board © Andrzej Grygiel/EPA

Many share his assessment. “When the EU launched its first energy and climate package 10 years ago, people were saying that the EU would abandon this policy, that Germany will not succeed with [its energy transition], and so on,” says Aleksandra Gawlikowska-Fyk, from Forum Energii, a Warsaw-based think-thank.

“But right now the market shows that there is no future for coal and lignite. We cannot pretend any more. Not from an economic point of view, nor a political one, nor a social one.”

Silesia: ‘people only lost as a result of the transition’ from coal

In the coal towns around Katowice in the southern Polish region of Silesia, mining has been a way of life for generations, with the sector’s festivals, clubs, uniforms and even orchestras a distinctive part of the social fabric.

“In Silesia, the mine was like a mother who gives life. Everything was concentrated on the mines, and they were a source of support for other industries,” says Marek Jozwiak, who worked as a supervisor at the Makoszowy mine in Zabrze, until it closed in 2016. “Mining was the heart of the system in Silesia. Culture was built around them, even football clubs were owned by them.”

When the Iron Curtain fell in 1989, around 400,000 people worked in the sector, and Poland was one of the world’s biggest producers of the black fuel.

But with many mines unproductive after decades of communist central planning, the transition to capitalism was a wrenching experience for both the industry and Silesia. The sector shrunk dramatically — today it employs around 80,000 people — while regeneration did not keep pace with the closure of old industries.

“Here in Silesia, we still haven’t been able to recover from this transition period at the turn of the century,” says Dominik Kolorz, head of a regional branch of Solidarity. “We have enclaves of exclusion like Bytom, like Swietochłowice, like the southern part of our region around Wodzisław Slaski or Rybnik, where people only lost as a result of transition.”

Many in the region are aware that the big social and economic trends are moving against the sector. But they argue that phasing out coal before 2050 is unrealistic, and that the money on offer from the EU is nowhere near enough to ease the transition.

“In my opinion Europe went too far into climate issues, which are extremely important, forgetting that apart from clean air people also need bread to live,” says Boguslaw Zietek, head of the Sierpien 80 union.