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Rock-bottom price of coal takes its toll

THE news that one of Scotland's biggest mining companies, Scottish Coal, is to cut its workforce by 450 comes as demand for coal is increasing.

It is one of the many paradoxes in energy supply.

The problem is the steep drop in the price of coal in Europe. As a result of a massive expansion of fracking, gas prices in America have plunged, displacing millions of tonnes of coal on to the Atlantic market. Because coal is cheap, our power stations are burning 50% more than they did last year and, because gas prices in Europe remain high, householders have been switching to coal, increasing demand.

It is a measure of the volatility of every type of fuel that, just three years ago, the parent company Scottish Resources Group (SRG) was offered a £47.5m debt facility but its bank is now restricting the overdraft to a month by month basis, prompting a warning to the group's 750 employees that, without new investment, it was likely the company would be unable to continue. Britain's other main coal producers have also warned of job losses, yet demand for coal in Britain rose by 35% last year.

Coal generation currently provides between 40% and 50% of the UK's electricity needs, making it an essential part of the mix until renewables or new nuclear power stations make a larger contribution.

As with all fossil fuels, there is an environmental cost to extraction, particularly when that is achieved through open-cast mines. The announcement that SRG will close or put on hold environmentally sensitive mining projects will be welcomed by green campaigners and particularly by people in Fife where Scottish Coal's plan to excavate up to 3.4m tonnes of high-quality, low-sulphur coal from beneath Loch Fitty has been seen as destruction on a worrying scale.

The environmental cost of importing coal from as far as South America or China bolsters the argument that it is better to use the coal available in Britain, with the considerable benefit of retaining thousands of jobs. But these principles cannot trump the low price of coal on the international market. As the most carbon intensive of fossil fuels, generating more energy from coal is a problem for CO2 reduction targets. Yet coal generation will be essential to fill the gap until more consistent power is available from renewable sources. This makes it vital that progress is expedited towards carbon capture and storage and more resources are put into developing wind and wave technology.

More urgently, two questions must be addressed. One is the consequence of our growing dependence on imported coal. The other is the wisdom of the UK's increasing reliance on gas, when continuing high prices, despite the huge increase in production in the US, demonstrate the producers' grip on the market. The rock bottom prices for coal will eventually rise but what will be left of the Scottish coal industry by the time that happens?

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