Political and economic crises in the U.K. have triggered an urgent reassessment of policies affecting coal and electric power generation. At stake are future markets for natural gas and possibly the political future of Prime Minister John Major.
Domestic and international politics are squeezing the Conservative Party leader mercilessly. Deep economic recession has angered voters and strained the U.K. treasury. Now a backlash against European monetary and political union-partly the product of recession-threatens Major with insurrection within his own party just as Britain takes its turn in the European Community presidency. The crossfire extracted a measure of political capital from Major last month, when his government decoupled the battered pound from the German mark. The action came days after Major proclaimed Britain's determination never to break rank from Europe's exchange rate mechanism.
ANOTHER REVERSAL
Reexamination of energy policy derives from another reversal costly to Major. On Oct. 13 the government announced plans to close 31 coal mines and to sack 30,000 workers. By the end of the following week it had announced reprieve for 21 mines and 22,000 jobs, subject to findings of the 3 month energy policy study. Meanwhile, Major threatened to call a general election if Parliament didn't ratify the Maastricht Treaty on European unification, a key vote on which is due this week. Intramural Tory tensions, already high, intensified.
It is not a climate conducive to levelheaded policy making. Political hysterics can only aggravate a problem that will be difficult enough to resolve. But the problem itself is clear: A newly privatized electricity industry has found ways to generate power that it considers preferable to burning overpriced coal in obsolete plants. The British, at times derisively, call it a "dash for gas." The phenomenon leads some members of Parliament to allege that something has biased the market against coal. They need a reminder that privatization renders their declarations on such matters irrelevant. In this regard, British Coal's difficulties in developing export markets for its heavily subsidized, costly product should be instructive.
HANDLING THE PAIN
None of that diminishes the problem. Privatization has deprived the coal industry of captive customers. Coal subsidies can no longer sneak through the economy via needlessly but universally high electricity costs. Contract demand for coal is expected to plummet soon to 40 million metric tons/year from its recent level of 65 million tons/year. Something has to give. If it is not to be 31 mines and 30,000 jobs right away, it will be economic efficiency sacrificed to some combination of direct government subsidy, elevated electricity costs, and less than optimum fuel selection. To be sure, precipitate joblessness for 30,000 miners represents pain. But so do uncompetitive businesses and high taxes. No matter how it is apportioned, self-inflicted inefficiency always hurts.
Britain's coal choice has more to do with social policy than with energy, which adds appeal to the middle course onto which the government has veered. Inevitably, uneconomic coal mines will close, and miners will lose their jobs. The challenge is to ease the shock to victims without losing economic resolve. This means making taxpayers and ratepayers share the pain while moving steadily toward a rational coal industry. But the energy policy choice has been made, and it is irreversible. The U.K. made this choice when it gave half the electricity business freedom to illustrate, through commercial decisions, what the nation has been doing to itself for many years.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
