Is The European ETS Falling At The First Hurdle?

Natural gas for the coming winter is certainly neither abundant nor cheap. And filling that gap in the power mix is coal.

The recent bull-run on EU emission allowances will soon no doubt draw the attention of policy-makers and the general media, which in turn could filter through to the Europe’s wider population.

There is, after all, a lot to discuss: A long lambasted EU policy is finally delivering a price which should structurally force plant operators to alter production to lower their carbon emissions. Something which was a cornerstone objective of the emissions trading scheme.

Except it is increasingly looking like it won’t, not for this winter at least in the UK.

As the ETS faces its first real test season with meaningfully priced EUAs, the scheme is instead delivering higher priced natural gas and electricity, but without any emissions savings. In fact emission may be higher than in previous years.

In what could be a fundamental oversight of the ETS, policy-makers will now need to explain to the electorate – many of whom are already irate at the cost of their utilities – why green market interventions are anything but, and yet are causing the highest wholesale prices in a decade.

The problem lies in the fact that the long-expected bountiful availability of gas in Europe, which was to be the vanguard of the energy transition heralded by higher-priced EUAs, is in short supply.

In a flat-priced gas price scenario the EUA rally would have long brought European CCGTs comfortably back into the money, compared to the dirtier coal fleet. Or, in the case of the UK, kept gas as the fuel of choice. Patient supporters of the ETS would have celebrated the structural shift in generation fuels across the continent.

But back in reality gas for the coming winter is certainly neither abundant nor cheap, with NBP prices having to remain competitive against mainland European hubs. Wholesale gas has been priced ever higher, precisely to make CCGTs less economic to run, relative to coal, even as emission allowances rise. Or at the very least to secure the additional gas needed to run the power plants that are able to switch.

In essence, gas has had to outpace the relative gains in carbon in an effort to lower consumption and maintain a balanced system. And filling that gap in the power mix is coal.

Full post

The post Is The European ETS Falling At The First Hurdle? appeared first on The Global Warming Policy Forum (GWPF).

via The Global Warming Policy Forum (GWPF)

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September 12, 2018 at 11:28AM

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