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By Emily Waterfield ( October 18, 2012, 14:24 GMT | Insight) -- Brussels – The future of coal is closely tied to plans for a reform of the EU emissions trading system (ETS) and for nuclear power, according to European Commission and industry representatives in Brussels today.
Kilian Gross, a deputy head of unit in the commission energy department, said coal sometimes seemed to be “a bit forgotten” in the EU energy debate, despite generating a quarter of all EU electricity. Of the total, 28 percent comes from nuclear and 23 percent from gas, with the rest made up of hydro power and renewables.
“We are convinced coal is an important energy source,” Gross said. He said recent EU energy policy developments had highlighted the key role played by fossilised carbon.
Germany’s decision to phase out nuclear power led to an immediate rise in coal prices, as countries looked for a secure alternative. In the absence of nuclear, markets also realised that Germany – the world’s largest lignite producer – was likely to keep more coal for domestic consumption.
But Gross said the most obvious policy link for coal was the ETS. The current low price of carbon permits “of course plays in favour of coal,” because it takes away the market incentive to invest in renewables, and draws attention to coal as the cheapest alternative.
“Is this a golden age of coal? Yes,” said Gross, referring to the title of the event*. “But the question remains: what will be the long-term position of coal?”
Brian Ricketts, secretary general of trade representatives Euracoal, warned the commission against making changes to the ETS to push the price up and shift investments back towards renewables.
In July this year the commission proposed delaying the release of carbon permits at the start of the next period of emissions trading, in the hope of creating scarcity and increasing prices.
“Worryingly, DG Clima argues that this is needed to fix the ETS,” Ricketts said.
But he said the reforms would only push up consumer prices, without a corresponding increase of investment in renewables.
“Is the ETS fit for purpose? Yes,” said Ricketts. “Achieving emission-reduction targets with a low CO2 price is a good outcome.”
Ricketts said prices would have to reach levels of 50 euros per tonne, up from around seven euros today, to make the changes the commission hopes to see in its long-term strategy paper, the 2050 ‘energy roadmap.’
“A rich economy can afford cleaner energy,” Ricketts said. “The EU cannot afford the future that’s mapped out in the energy roadmap.”
He warned that high oil prices have been accused of speeding up the current economic crisis, and said increasing the cost of coal would have no positive impact.
Sylvie Cornot-Gandolphe, an energy economist with the Institut Français des Relations Internationals (Ifri), agreed that a low CO2 price had “pushed up profitability” for the coal sector.
When it launched in 2005, the ETS looked like “very bad news” for coal, which has twice the emissions of natural gas. “But that depends a lot on CO2 prices,” she said. “[The ETS] did not work in 2011 and 2012,” Cornot-Gandolphe said....
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