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Coal power generation has fallen fast.  The reasons are nothing to do the EUETS.  The fall in coal is a major reason that the carbon price is so low.  And this means the rest of the EUETS is getting an easy ride.  This threatens the integrity of the whole EUETS.  We need to re-base the EUETS cap in line with actual emissions. 
Great news! CO2 emissions from coal power stations will collapse this year again.   We estimate EUETS emissions will fall by 4.7% this year to 1718Mt.  This is mainly caused by coal emissions falling by 96Mt this year – a fall of 13%.  Gas power emissions will rise slightly due to UK coal/gas switching, and industrial emissions will fall slightly due to a fall in steel production.

 

This means the gap between EUETS emissions and the cap will increase from 10% in 2015 to 13% in 2016.  The 4.7% fall in EUETS emissions this year will significantly outpace the 1.9% fall (1.74%LRF) in the cap.  And the gap will increase year after year, because of falling coal power emissions.

 

Coal power emissions are falling everywhere – and it is nothing to do with the EUETS.  The most dramatic falls this year have been in the UK, where coal emissions will have fallen by almost 2/3rds in one year alone.  A key driver of this, besides renewables growth, is the carbon price support, which increases carbon price to about €30/t, six times the current EUETS level, and is enough to make coal more expensive than gas.

However, still the UK constitutes less than half of this year’s bumper fall: Netherlands closed old coal plant, German renewables growth outpaced its nuclear output reduction, Belgium’s last coal plant closed, Spain and Portugal resumed the downtrend after last year’s drought, and Greek renewables is beating lignite generation for the first time.

The underlying reasons for coal generation falling are renewables growth, falling electricity demand, old coal power plants reaching the end of their economic life especially as they need investment from tightening pollution limits, and a political desire to phase out coal.  These reasons are structural and will lead to year-on-year reductions.

 

How fast will coal emissions fall?  Many of the decisions that will determine future emissions, even to 2020, have yet to be made.  But it is highly likely that the gap between cap and emissions will continue to grow due to falling coal power emissions.

Two years ago this week, Sandbag published a forecast of EUETS emissions to 2020.  It forecast huge reductions in emissions to 2020, which were widely reported, driven by a collapse in coal generation.  And so far, our emissions forecast has been more accurate than that from any other analyst.

Maybe our forecast is a bit over-optimistic to 2020: coal power emissions may not fall as fast in eastern Europe because of underwhelming energy efficiency, a slow-down in renewables, and no political desire to tackle coal especially in Poland.

On the other hand, coal in western Europe may fall faster: the political will to tackle coal is gaining ground with coal phase-out discussions extending from UK, Denmark and Finland, to France, Netherlands and even Germany; also huge falls in the costs of offshore wind are helping renewables displace coal, as is a fall in gas prices.

 

Falling coal emissions are nothing to do with the EUETS carbon price.  But they are a key reason the carbon price is low for everyone else.  This threatens the integrity of the whole EUETS.  The easiest solution is to re-base the cap, so other sectors also reduce emissions, at the same time that coal declines.