UK Coal plc: Estimating the Economic Impact of Mine Closures

The Situation

NERA was engaged by UK Coal to estimate the economic and social impact of the closure of certain English coal mines. The study was motivated by UK Coal's concerns over the UK Government's proposed method for implementing the European Commission's Large Combustion Plants Directive. The Directive offered two alternative methods of implementation; UK Coal contended that one of the proposed approaches would cause its main customers, coal-fired generators, to substitute away from high-sulphur domestic coal towards lower-sulphur imported coal, leading to the unnecessary early closure of domestic coal mines.

NERA's Role

UK Coal asked NERA to assess the effects of mine closures. The timeframe was short: NERA was given just over two weeks to complete a detailed economic model and a report to be circulated among Members of Parliament (MPs), Ministers and the relevant government departments. NERA analyzed the impact of coal mine closures using three yardsticks: the impact on GDP, the impact on public finances and a qualitative analysis of the potential social impacts. With years of experience in senior Treasury positions, NERA Special Consultant Michael Spackman helped to ensure the report was constructed to be well received by Ministers and government departments.

The Result

Following the release of NERA’s report, several MPs cited NERA's estimates of the economic cost of mine closures in a motion tabled in the House of Commons regarding the choice of methods for implementing the Directive. Shortly afterwards the Minister for the Environment, Food and Rural Affairs announced that the Government intended to move towards a hybrid solution, under which owners of combustion plants would be able to meet the requirements of the Directive under one of two different methods. This outcome alleviated UK Coal's primary concerns about the impact on its largest customers, and was also beneficial to the large industrial and electricity generation sectors, which had been divided over the choice between methodologies.