Regulatory environment

National regulations

The Act imposes an obligation on economic operators introducing coal to or moving coal on the territory of the Republic of Poland (“RP”), regardless of the country of origin of the coal, to hold and produce, at the request of the voivodeship Trade Inspectorate inspector and of the head of the customs & revenue office, documents that confirm the country of origin of coal, the date of coal introduction to or movement on the territory of RP, and in the case of coal whose country of origin is Ukraine – also the region of coal mining. These documents should be stored for a period of 5 years of the date of coal introduction to the territory of RP.

It sets the framework and specifies the directions of the Polish energy transition. Its objectives are based on three pillars: just transition, carbon-neutral energy system, and good quality of air. In order to achieve the objectives set, 8 specific goals have been set optimum use of own energy resources, development of electricity generation and network infrastructure, diversification of supply and expansion of network infrastructure of natural gas, oil and liquid fuels, development of the energy market, deployment of nuclear energy, development of renewable energy sources, development of heating and cogeneration, improvement of energy efficiency.

The minimum share of electricity from renewable energy sources in the total annual sale of electricity has been specified for 2023, in the amount of 12.0% – for electricity generated from agricultural biogas before the effective date of chapter 4 of the Act or from renewable energy sources other than agricultural biogas or the paid substitution fee; 0.50% – for electricity generated from agricultural biogas after the effective date of chapter 4 of the act or equivalent quantity of electricity under the redeemed certificates of origin of agricultural biogas, or the substitution fee paid.

The hitherto rules of price determination in bids on the balancing market were amended. The change in the mechanism makes the rules of submitting balancing bids more specific such that they reflect the variable cost level. The new system is supposed to ensure that prices in bids submitted on the balancing market are not higher than the maximum bid price. Thanks to that, prices on the balancing market are supposed to be similar to energy generation costs. Through the energy purchase model applied in the Parent Company, JSW has become a beneficiary of these changes.

The Act aims to provide support to local authorities, micro-, small and medium enterprises, customers in households. Electricity generators and trading companies are obliged to make a so-called contribution to the Price Difference Disbursement Fund when they achieve such prices on electricity sale that exceed the price limits calculated in accordance with the governmental Regulation. The introduced mechanism exerts an impact on the electricity prices on the wholesale market in Poland in 2023.

The amendment to the Act of 1 December 2021 introduced the option for a mining company to transfer free-of-charge a mine or a designated part thereof, engaged in extracting hard coal or conducting mining works in the period from 1 December 2021 to 31 December 2023 for the purpose of winding them up. This transfer may transpire in favor of another company specified in Article 8 section 1 whose core business is, among other things, winding up mines. One of the most important amendments is the modification of Article 11b sections 3 and 4, according to which an employee has the right to a miner’s leave of up to four years provided that taking that leave will enable the worker to acquire retirement rights prior to 1 January 2028, while the leave for workers in a coal preparation plant is for up to three years provided that taking that leave will enable the worker to acquire retirement rights prior to 1 January 2027.

Furthermore, the amendment to the Act of 3 February 2022 introduced an institution of support system, i.e. a mechanism of public support for bituminous coal mining sector, specified in governmental strategic documents, adopted for the purpose of gradual phase-out of the bituminous coal mining operations, covering in particular subsidies for the reduction of the production capacities and coverage of costs arising from the termination of bituminous coal mining and liquidation of production units that are not related to current production, for the mining enterprises covered by the system. The amendment concerned also such issues as specification of the subsidy amount and of the nominal value of treasury securities for the increase in the share capital of a mining enterprise covered by the support system.

European union regulations

In December 2019, the European Commission presented the European Green Deal, which is a new strategy for growth. The Commission pointed there to specific objectives to be achieved in order to make the EU economy climate neutral by 2050. They include in particular an effective and rational use of resources, at the same time taking measures to protect biodiversity, reduce pollution, and hence transition to a circular economy.

The politics areas being part of the Green Deal are, among others, sustainable industry and support for innovation, investments in environment-friendly technologies, sustainable mobility or clean energy. In order to achieve these goals, the EU industry needs pioneers in the field of climate and resources, which would develop first commercial applications of breakthrough technologies in the key industry sectors by 2030. The key areas include pure hydrogen, fuel cells and other alternative fuels, energy storage and capturing, carbon dioxide storage and disposal. All these measures are aimed to facilitate fulfilling the EU’s ambition to be the leader in the field of accomplishment of objectives of sustainable future and socially just, gradual transition.

So far, the Critical Raw Materials List (CRM List) for the European Union has been a communication prepared by the European Commission since 2011. This non-legislative document was updated every 3 years and contained a list of raw materials necessary for the development of a low-carbon EU economy. Coking coal was included in the List for the first time in 2014 and was maintained in the successive editions in 2017 and 2020.

As a result of the 2020 update, the Critical Raw Materials List was expanded from 27 to 30 raw materials. The list was still non-legislative, hence without any impact on the EU legislation, while the presence of coking coal on the list did not translate into direct benefits for the Company.

The aim of the draft Regulation presented by the European Commission in March 2023 is to improve the functioning of the internal market through establishment of a framework for ensuring a secure and sustainable supply of critical raw materials for the EU. In order to attain this aim, the Commission proposed to prepare two lists of vital raw materials from the point of view of the EU economy and its transition: a list of strategic raw materials and a list of critical raw materials. The latter list included coking coal, which has been evaluated according to a separate methodology and determination of indicators of supply risks and economic significance. Pursuant to delegated acts, the Commission will prepare an update of the list every 4 years of the entry of the Regulation into force.

The draft provides for, among others, improvement of the EU capacity to monitor and mitigate the supply risk related to critical raw materials. One of the goals is also to ensure the free movement of critical raw materials and products containing critical raw materials marketed in the EU, while ensuring a high level of environmental protection, by improving their circularity and sustainability.

The EU industry, including the steel industry, relies on secure, sustainable and affordable supplies of strategic raw materials. Since there are no sufficient internal sources of supply, the European Union and its generation sector are virtually fully dependent on the imports of both iron ore and coking coal. Unfortunately, emissions from sea transport, the supply waiting time and uncertainty due to unpredictable weather phenomena are adverse aspects of dependency on the imports of those raw materials. The European Commission’s Proposal is an expression of the necessity to support and protect local suppliers of the domestic, EU market.

On 15 December 2021, the European Commission presented a Proposal for a Regulation on methane emissions reduction in the energy sector, covering the oil, gas and coal sectors. In its Draft, the Commission proposes to introduce an obligation of continuous measurement and quantification of methane emissions from ventilation shafts and drainage stations of coal mines and of reporting that data. The Draft includes also provisions regarding prohibition of venting and flaring of methane from drainage stations from 2025 (except in the case of an emergency), and prohibition of venting of methane through ventilation shafts in coal mines emitting more than 0.5 tons of methane/kiloton of coal mined from 2027, but this prohibition would not apply to mines of coking coal, of which JSW is a producer. Guidelines regarding the venting of methane from ventilation shafts for coking coal mines would be adopted three years from the date of entry into force of the Regulation.

The works related to the Regulation are in progress simultaneously in the  European Parliament and in the Council of the European Union. After adopting the negotiation mandate by the European Parliament, interinstitutional trilateral negotiations (so-called trilogues) will commences, during which representatives of the European Commission, the Council and the European Parliament will develop the final provisions of the Regulation. They will have to be approved, in turn, by the European Parliament and by representatives of the Member States by voting. The document will be published in the Official Journal only after their adoption.

The increasing requirements of the European Union as regards environmental protection are reflected also in tighter restrictions and legal regulations related to the reduction of particulate matter and greenhouse gas emissions.

The JSW Group constantly oversees the environmental protection legal requirements by making the necessary investments to meet all environmental requirements. Awareness and responsibility in acting on the basis of the highest environmental standards and consistency in fulfilling environmental tasks are among the Group’s priorities.

One of the priorities of the European Union is to prevent climate change, among others through limiting the consumption of natural energy resources, introducing modern and efficient energy generation technologies, limiting carbon dioxide emissions, reducing energy consumption and increasing the importance of renewable energy generation. In order to accomplish these objectives, the European Union introduced the EU ETS 16 years ago. It is a system of trading caps, which consists in introduction of total emissions of certain greenhouse gases emitted by over 11 thousand power stations and production plants in the Member States, in Iceland, Liechtenstein, Norway and Switzerland. The Scheme covers approx. 45% of the total emissions in the EU. The Directive is being reviewed at present. As a result of the trilateral negotiations, changes were proposed to the EC draft compared to the Commission's original proposal, including a further reduction in the number of annual allowances available until 2030, with the aim of reducing emissions by 62% by 2030. In addition, increased financing of innovative technologies and of modernization of the power system through the Innovation Fund and the Modernization Fund was approved. A portion of income from the new trading scheme will be allocated to the Social Climate Fund, whose aim is to support households and enterprises afflicted by energy poverty.

Free allowances for the industry, for the sectors covered by the EU carbon border adjustment mechanism (CBAM) would be gradually phased out by 2034 (2026: 2.5%, 2027: 5%, 2028: 10%, 2029: 22.5%, 2030: 48.5%, 2031: 61%, 2032: 73.5%, 2033: 86%, 2034: 100%.), whereas CBAM at the same time will be gradually introduced and fully operational by 2034. The mechanism would impose a price for carbon emissions on goods imported from less ambitious countries and prevented enterprises from relocating their production to countries with less stringent greenhouse gas emissions regulations.

After the Members of the EP and the EU governments reached an agreement on a revision of ETS in December 2022, the Parliament is to vote on the corrected version in April 2023.

This Directive is the primary instrument of the EU that regulates the emissions of pollutions from industrial installations and its main objective is to achieve the possibly highest level of protection of the environment and human health by reducing harmful industrial emissions in the whole EU with the use of best available techniques (BAT). The Directive is based on several pillars such as integrated approach, use of best available techniques, flexibility, control and public participation. The Directive is being reviewed at present.

The EU legal regulations applicable to the environment and the usage of natural resources are subject to constant change and the trend over the most recent years has been toward increasing the binding standards.

In order to meet them, the JSW Group has to verify on an ongoing basis whether the process installations it operates meet the requirements specified by the EU IED. For installations holding integrated permits, it is crucial to meet the requirements of the BAT conclusions, which are an implementing decision of the European Commission and arise directly from IED.

The conclusions are binding directly in the Member States, hence they apply to all plants of a given sector in the whole European Union and serve for determining the amount of pollution emissions and for making the emissions limits reflect correct proportions between benefits and costs.

The modernization of infrastructure in coking plants (coke oven batteries, installations for purification and effective use of coke oven gas), apart from renewing the production potential of JSW Group’s plants, always aims to reduce their environmental impact.

Regulation 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment concerns the establishment of the first classification system for sustainable activities in the world.

Evaluation according to the criteria specified in the Taxonomy will cover economic activities and the fact whether they are environmentally sustainable or not. The activities are subject to designation with the use of the European classification system, NACE, whose Polish equivalent is PKD. On this basis, it is possible to designate the degree to which the whole activity of a given company is sustainable and subsequently it is possible on this basis to evaluate the degree to which the financial product or investment portfolio is environmentally sustainable. The Taxonomy concerns only environmental issues, i.e. it does not refer to social aspects and corporate governance. The Commission is preparing delegated acts related to conformity of activities with individual environmental objectives listed in Article 9 of the Regulation.

The classification system will have to be used by the Member States and the European Union, the financial market participants offering financial products, financial and non-financial companies covered by non-financial reporting (Directive on non-financial reporting, NFRD) – this applies to large civic companies with over 500 employees, which are approx. 6,000 large companies and groups in the whole EU.

Environmentally sustainable activities will have to meet the following conditions: contribute materially to the achievement of one of the six objectives in the Regulation (specified in Article 9 of the Regulation), not be detrimental to any of these objectives, and be pursued in accordance with the rules of the International Labour Organization convention.

The provisions concerning the environmental objectives related to climate change mitigation and adaptation have been applicable since 1 January 2022, while the provisions concerning the other four environmental objectives (Article 9) – since 1 January 2023.

Pursuant to the Communication of the Commission of 16 March 2023 on secure and sustainable supply of critical raw materials, in order to support the double transition, the EU Platform on Sustainable Finance will prepare, at the Commission’s request, criteria of a taxonomy for the mining and processing sectors.

Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector has functioned in the EU since 10 March 2021 as an act that is binding in its entirety, hence it is applied directly in each Member State. This means that this act has become a part of the national legal system by exerting direct effects on financial market participants and financial advisers.

SFDR applies to investment products and portfolio advice and management services and governs the disclosure obligations of financial market entities.  The Regulation imposes new obligations on financial institutions, including banks, related to transparency and disclosure of their approach to risk management for sustainable development as part of the investment activity they pursue and the investment decisions they make.

Directly applicable are also the implementing acts to the Regulation, which govern the obligations imposed on the entities in detail, so-called Regulatory Technical Standards (RTS). Said standards determine two types of disclosures to which financial institutions will be obliged: at the financial institution level and at the product level.

While supporting the achievement of the objectives specified in the European Green Deal, including while trying to create better conditions for sustainable investments above all in the private sector, the European Commission undertook to review Directive 2014/95/EU of 22 October 2014 on non-financial reporting (NFDR). Following the revision in December 2022, the Directive on corporate sustainability reporting (CSRD) was published in the EU Official Journal.

The Member States must transpose the Directive until 6 July 2024. Regardless of the deadline for the implementation of CSRD, all companies covered by the current Non-Financial Disclosure Directive (NFRD), including JSW, have to commence collecting data for the new sustainability report for the financial years from 1 January 2024 and later. The detailed scope of the ESG disclosures of the companies will be determined in the first batch of the ESRS, which will be published in the form of Regulations until the end of June 2023. ESRS will be applicable directly in national legislation.