EU Emissions Trading System allowance cut to raise the price of coal

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The European Commission will remove 800 million allowances from the EU Emissions Trading System (ETS) in a bid to increase the currently extremely low price of CO2 and make coal-fired power less financially attractive.

Maros Sefcovic, the commission’s vice-president for energy union, said this morning that he believed the move will lead to a “more realistic carbon price”.

“We have a system that technically works perfectly, but at the same time, [has resulted in] a tonne of CO2 [costing] between €4-5  which definitely doesn’t represent all the externalities, it doesn’t drive the innovation [in renewables] and it creates a situation where we see in some of our member states that coal is coming back,” he told The New York Times Energy for Tomorrow conference in Paris.

He added that all Europe’s hard work in developing renewables and reducing carbon emissions is being “partially offset” by increasing coal production in Eastern Europe.

“So we are going to remove 800 million allowances from the market and put it, as I call it, into the deep freezer — it’s called the Market Stability Reserve [MSR] — which I believe will lead to a more realistic carbon price.”

However, it was unclear from Sefcovic’s remarks when these 800 million allowances will be removed. The MSR is currently not due to start operating until January 2019.

The news followed repeatedly calls at the conference for the ETS to be “fixed”. Fatih Birol, executive director of the International Energy Agency, said yesterday that it was absurd that the price had fallen by a third from about €9 per tonne of CO2 since the Paris Agreement was signed. Angel Gurría, secretary-general of the OECD, said the world needs a carbon price of €100 by 2030.