Mr Heseltine told the cross-party Trade and Industry Select Committee's first hearing in its review of pit closures that he had considered introducing a subsidy or levy to 'finance the coal deficit' as one of two alternative courses of action, but decided it would be unfair to the rest of British industry.
He also took legal advice on a second option - whether he could make National Power, PowerGen and the 12 regional electricity companies sign a new contract with British Coal. He was told it was not possible.
Near the end of a two-hour session, revealing what appeared to be frustration over the way his hands were tied legally, Mr Heseltine said he might back a change in the law if a larger market for British Coal could be found.
The current contract to supply 65 million tonnes expires next April. The companies have so far failed to sign a deal to take 40 million tonnes next year and 30 million in each of four subsequent years. If no contract is signed, ministers believe thousands of jobs on top of the 30,000 currently under threat could be lost.
Mr Heseltine received the legal advice on 7 September after months of negotiation. He told the committee the law had put in place privatised electricity companies, a competitive regime and a regulator. 'I had done all I could within the law to see the uncertainty ended,' he said.
Mr Heseltine told the committee a coal subsidy would 'preserve a situation which in the short term might be sustainable but would have severe penalties across the industrial scene'.
He added: 'I am responsible for the whole of British industry and for the policies designed to make British industry competitive. So I was not in the end persuaded that was the way to go.'
Pressed by committee members on the subsidy option, Mr Heseltine said he would have had to go either to the Treasury for more public money or put the cost on the consumer. That would have required legislation.
While he made clear he never reached the point of considering subsidies as a 'viable political choice', he accepted it would not be impossible to get European Commission permission to subsidise coal sold for domestic consumption.
He also agreed with Richard Caborn, the Labour chairman of the committee, that he would have preferred to have had more power to act strategically.
While emphasising that there was no guarantee he would have secured a new contract, he said: 'I think that if I had the power to negotiate with the electricity industry collectively I might have been able to make more progress.'
Later, he said he might be prepared to recommend a law change if a larger market for British Coal could be found.
Mr Heseltine laid the blame for the rapid demise of the coal industry on the electricity industry. He told the committee: 'It is the market that is driving energy policy. . . . I cannot force electricity companies to buy coal.'
But he added that the economics of gas-fired electricity generation - which is blamed for displacing coal - would be a focus of the Government's own review of energy policy. He said that if British Coal had offered the prices on the table at an earlier date he believed not all the planned gas-fired plant would be going ahead.
British Coal is offering prices to National Power and PowerGen of around 150p a gigajoule compared with 185p in existing contracts. The generators will not sign unless the regional companies agree to take the electricity generated by use of the coal.
A senior Department of Trade and Industry (DTI) official has paid the price for government embarrassment over pit closures by being switched suddenly to a new job, in contravention of the convention that civil servants should not be held responsible for policy failures.
The DTI last night defended the swapping of Robert Priddle, Deputy Secretary in the energy division, with a colleague in the corporate and consumer affairs division as 'sensible' in the light of the government review of the closure programme, forced by last week's protests and the climb-down that followed.
The decision, taken by the department at a senior level, is virtually unprecedented, however. There have been no changes at the Treasury or the Bank of England after the dramatic exit of the pound from the European exchange rate mechanism.
Under the convention ministers take responsibility for policy errors. But no steps have been taken to unseat Mr Heseltine or Tim Eggar, the Minster for Energy.
'We felt it would be good to have a fresh pair of eyes on the policy in view of the review,' a DTI spokeswoman said, emphasising that Mr Priddle, who had held the post for three years, had not been demoted.
The European Commission was last night urged to halt pit closures in Britain by declaring a state of emergency in the European coal industry, writes Tim Jackson.
Members of the European Parliament called for the Commission to use its emergency powers to introduce coal production quotas across the EC. The British government would be able to block such a plan.
(Photograph omitted)Reuse content