Commentary: Case on coal is not black and white

Forget the emotion: should 31 coal pits be shut? British Coal has only one real market - the electricity generators. Until next year the generators are having to buy more coal than they want at a price higher than they think they should be paying. As publicly- quoted companies, they naturally regard this as an abomination. They want to pay less for their fuel overall, and they want to spread their source of supply. They will pledge to buy less than half the British coal they are buying now, and this is why so many coal mines must close.

The argument, though, is not so simple. Thanks to massive leaps in productivity, the cost of UK coal has plummeted. The savings that the generators will make by importing coal or by buying more power from new, gas-powered stations may prove short-lived. The dash for imports and for gas seems to be more an attempt to give them muscle against the rump of the coal industry than a genuine push to reduce electricity costs.

In addition, British coal is not subject to the currency fluctuations that have just pushed up import prices. It is not subject to the vagaries of the gas market: the gas price jumped by 30 per cent last year. It is a strategic resource: a power source beneath our feet. This may sound like a quaint line of thinking, but the Germans are convinced by it. Energy industries are capital-intensive, and have long lead times. Decision-making must be based on a long-run view of costs. A mine closed is a mine closed forever, because they flood almost immediately.

These arguments can be tossed backwards and forwards. But no one can really come up with a sensible conclusion, because no proper research has been done. One consultant described the Rothschild report, which originally suggested the cuts, as 'a shabby and silly document, ill thought through and based on scanty knowledge'. Enough people agree to cast serious doubt on its conclusions.

Yet the Government has swallowed Rothschild hook, line and sinker. It may be the right decision: the British have undoubtedly tended to hang on to their dying industries too long. But it may not. The case is simply not proven, and it is most certainly silly to make 30,000 people redundant in the middle of a recession unless you are sure beyond reasonable doubt that it makes sense.

It is especially odd to do so when so many of those people will remain a burden on the state even when the recession lifts, merely because of the isolated nature of many mining areas. But what makes the Government's decision especially suspect is its apparent reluctance to sell mines to the private sector even when they have been earmarked for closure. What price market signals now?

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