The End of Coal?

Once a cornerstone of German industry, the country's depleted coal mining network's bleak future became even more uncertain after a report revealed that the cots of German coal company Deutsche Steinkohle (DSK), a subsidiary of German mining group RAG, had exceeded government subsidies by 163 million euros ($211 million) last year.

The revelation in an article in Der Spiegel magazine quoted Bernd Tönjes, the head of DSK's board of management, as saying that the industry's gap between subsidy and profit was so severe that if it were not reduced by the end of the year -- and if the German government did not increase the industry's subsidies-- one of the country's last eight mines would be closed with the loss of at least 3,000 jobs.

The DSK operates all the remaining mines in Germany -- seven in North Rhine-Westphalia and one in Saarland -- and employees 34,000 staff. Germany's coal industry employs around 80,000 people in total.

DSK parent company RAG also spoke of the crisis on Sunday saying that the longer the hole takes to be filled, the more mines and jobs will remain at risk.

"We are looking at the situation with great concern," said RAG spokesman Christian Kullmann in an interview with the Associated Press news agency. "The consequences of this situation will be discussed as part of an extraordinary supervisory board meeting with the DSK."

According to Der Spiegel, the German government would have to increase its subsidies by a total of 2.5 billion euros in order to avoid job cuts until 2012, when a final decision on the timeline for ending coal mining in Germany could be reached.

SPD want to delay final decision

Chancellor Angela Merkel's conservative political bloc has set 2018 as a deadline for ending the subsidies, but the Social Democratic (SPD) members of her government do not agree with such a concrete date and want any final decision on future support for the industry to be delayed until 2012.

The future of the coal industry is a particularly sensitive issue for the SPD, whose political heartland is centered in the coal and industry belt of Germany's Ruhr Valley. The SPD has rejected completely shutting down the industry and wants to retain a core coal industry, which played a leading role in helping to forge Germany's post-World War II economic "miracle."

Ending state aid for the coal industry would have considerable social implications. Apart from the thousands of jobs dependent on coal mining, the drive to reach a compromise on the industry's future in Germany comes against the backdrop of a growing dilemma in the nation about its overall energy needs.

This is particularly the case following Berlin's decision to phase out nuclear energy by 2021.

Coal industry's demise adds to energy dilemma

Unlike the bruising battle with trade unions in Britain in the 1980s over shutting a huge swathe of the country's mines, over the last decade or more Germany has pursued a more consensual approach to winding down the industry and retraining employees.

But the economics behind the German coal mining would not seem to be working in the industry's favor.

While the price for a ton of coal on the world market is currently about 60 euros, the cost of wrenching one ton out of Germany's mines, which are carved into the deep earth, is about 190 euros a ton.

Adding to the pressure to reach a decision over the coal industry's future is the government's plan to consolidate Germany's public finances to ensure the country's budget deficit remains within the strict fiscal targets laid down for EU member states.

In addition to the increasing worries about climate change, Germany's growing energy debate has also been shaped by last year's surge in oil prices along with rising concerns about the security of supplies in the wake of last year's so-called gas war.

This is especially the case following Russia's Gazprom's fight with eastern Europe over energy contracts.

What will fill the gap left by coal?

Combined with this, the recent rise in German gas prices has alarmed consumers and as a result helped to make greater dependence on gas politically unacceptable in the nation as well as other parts of Europe.

Indeed, the question for Germany's political and business leaders as they grapple with the future of coal is what will replace the around 20 percent gap in the nation's energy mix that will emerge once the country has dismantled its nuclear energy apparatus around the end of the next decade.

Although generous government subsides might have also helped to turn Germany into a world leader in the use of alternative energy sources, even officials in Berlin remain skeptical as to whether renewable energy will have the potential to power the nation's heavy industry in the near future.