Call for carbon market reform to reverse EU coal comeback

Polluting coal plants will stay open unless policymakers act, say campaigners

Source: Flickr/FMJ Shooter

Source: Flickr/FMJ Shooter

By Megan Darby

Coal’s comeback in Europe could become permanent unless policymakers rethink their approach, campaigners have warned.

Carbon emissions from coal power across the EU have risen 6% since 2010, despite falling electricity demand and increased renewable generation.

That is a result of cheap coal displacing expensive, but less polluting, gas in the energy mix.

Sandbag, a London-based NGO and think-tank, called for urgent action to curb coal emissions, in a report published on Thursday.

Dave Jones, policy analyst at Sandbag, said: “Even as countries like Germany massively increase renewables, the carbon intensity of their power sector is rising as they increase their coal burn.

“The good news is this means if we act quickly there is huge potential to reduce emissions quickly by switching back to gas, but to do this this the EU needs a functioning carbon market.”

The European Commission is considering reforms to its emissions trading system (ETS) to make it more effective.

The ETS was introduced to put a price on greenhouse gas emissions and drive a shift away from the most polluting energy sources, including coal.

However, by 2013 there was a surplus of some 2 billion allowances, partly as a result of the financial crisis hitting demand. The carbon price has fallen to around €5 a tonne, which is too low to have much impact.

The Commission’s answer to this problem is a “market stability reserve”, to rebalance supply and demand. It proposes to bring this in at the start of the next trading period, in 2021.

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Germany is calling for the market stability reserve to be brought in sooner, starting in 2017, while the UK wants surplus allowances to be cancelled altogether.

Sandbag supports both ideas for more radical reform and recommends “aggressive increases” to the rate at which the total volume of allowances falls each year.

The think-tank also suggested changes to Europe’s proposed 2030 climate framework, which currently includes a 27% renewable energy target that is not binding on member states.

Jones said: “Rather than its weak plan for non-binding renewables targets, each member state should have a binding target to lower the carbon intensity of its power sector, guaranteeing unabated coal can’t continue at high levels and supporting renewables at the same time.”

Meanwhile, analysts at Bloomberg New Energy Finance (BNEF) said a UK government scheme to prevent power blackouts will prolong the lives of aging coal plants.

After Poland and Germany, the UK is third most reliant on coal in Europe, getting 43% of its electricity from coal in 2013.

The UK’s “capacity market”, which got state aid approval from Brussels on Wednesday, was to spur investment in gas-fired power stations that could run flexibly to back up intermittent wind power.

However, a BNEF report found it was more likely to give coal generators an incentive to stay open.

Seb Henbest, head of Europe, Middle East and Africa at BNEF, said: “This message from our analysis will disappoint those who have been hoping that the capacity market would immediately pave the way for new gas-fired capacity in the UK, and also those who have been calling for the rapid retirement of coal-fired power plants.”

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