Leading article: Shed few tears if our coal industry dies out

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The Independent Culture
NOW THAT you can get your gas from the electricity company, and electricity from the water company, the Conservative reforms of the energy market are truly filtering through to the consumer. Meanwhile, at the other end of the energy chain, it seems that the realities of the free market have finally got through to the coal industry - and as a result the obituaries are being prepared.

It is tempting, then, to see Margaret Beckett's "rescue package" for coal as a sentimental piece of Old Labour atavism, in which the Prime Minister's free-market instincts were forced to compromise with the party's instinct to protect coalminers' jobs. There is some truth in that, but only some. The ideal of a "free market" in energy has proved as elusive as Christianity or communism - always approximated to, never perfected, and with the route hotly disputed.

At the heart of the problem is the route to a free market chosen by Professor Stephen Littlechild, the electricity regulator. Because the generating industry was privatised as a duopoly between National Power and PowerGen, he sought to encourage new producers to enter the market. This has cut the market share of the two dominant players, but has had the perverse effect in the meantime of encouraging the "dash to gas", because newcomers can build new gas power stations more cheaply than coal-fired plants.

In the past five years, the share of electricity generated by gas has leapt from nothing to one-third, while coal's share has dropped from two- thirds to one-third. But, because the emphasis has been on encouraging new entrants rather than cutting prices, prices are still higher than they should be.

Then there is the peculiar system of pricing electricity, a combination of daily auction (including, bizarrely, some electricity priced at zero) and long-term contracts. Mrs Beckett yesterday promised reform, and in effect argued that, because it would take time to achieve a level playing field - the next stage in the approximation to a truly competitive free market - the coal industry should continue to be protected for an unspecified period.

This is where the Government's argument becomes confused. She said that planning permission for new gas power stations would be restricted, on grounds of "energy policy concerns relating to diversity and security". These are old-fashioned arguments.

Diversity of supply is a minor consideration. Obviously, it would be better not to destroy the coal industry if it turns out that it could have competed in a fair free market. But there is no point keeping an over-priced coal industry afloat just for the sake of "diversity". And "security" is irrelevant. The idea of safeguarding a long-term indigenous energy supply only matters if we are contemplating a war in Europe at some point in the next quarter-century. No one, for example, can argue that Japan has been held back by having to import almost all its energy.

The only test that matters for the coal industry is whether it can survive in the closest to a free market that can be achieved, and the only test for Mrs Beckett's proposals is to what extent they remove the factors which currently distort the energy market.

Of course, there are wider costs which need to be taken into account, but they by no means all favour coal over other sources of energy. Closing pits plunges whole towns into poverty - and the concentrated loss of jobs is a drain on the taxpayer. But coal is a dirty, dangerous fuel, imposing costs which are difficult to price in monetary terms on our environment and on the lives of miners, two of whom died in a pit collapse only last month.

Mrs Beckett's success in removing market distortions cannot be judged, because all she did was promise a further review. But whenever this much- postponed goal is achieved, we shall find out if the coal industry really is competitive, and should not grieve too much if it is not.