Update: In the UK Budget announcement on 29th October, the government confirmed that the UK Carbon Price Support would be frozen for another year. This should act to keep coal emissions low, near the BEIS Reference Scenario.
Originally published on Business Green
“Coal is yesterday’s fuel” said Claire Perry last week. But decisions on the UK carbon tax in the October Budget could see a temporary coal revival.
A coalition of environment groups – including Greenpeace, WWF, Friends of the Earth, Bright Blue, and Sandbag – wrote to the Chancellor calling for a strong carbon price to keep coal down.
Coal generators currently have to pay £36 for each tonne of CO2 they emit, made up of the £18 UK Carbon Price Support (CPS) and £18 from the EU Emissions Trading System (EU ETS). This combination has driven UK coal from providing 40% of the electricity grid to just 7% last year. Now rumours swirl that the Chancellor is considering cutting the CPS in the Budget – but the consequences would be stark.
A lower carbon price will dramatically increase UK emissions. Sandbag’s new analysis, published today, shows that UK coal will over 22 million tonnes more CO2 over the next three years, when compared with the BEIS Reference Scenario. This is equivalent to Croatia’s total annual emissions. The UK is already on track to miss the fourth carbon budget (2023-2028) by 116 million tonnes. Increased coal burning would put even more pressure on other sectors to decarbonise.
A clue to the government’s preferred carbon price came in last Friday’s ‘No Deal’ Brexit note, indicating that failure to get a deal with the EU in March would see the UK leave the EU ETS and fall back on a lower total carbon tax of just £24. Combined with the higher than expected international gas price, this would give a lifeline to coal generators which are otherwise mostly on track to close in the next three years.
If large scale coal generation becomes more profitable over the coming years, it will make economic sense for coal generators to bid more aggressively in future Capacity Market auctions. This will crowd out investment in cleaner power (including demand side response, batteries, and small gas generators). Cutting the UK carbon tax now might give a small short-term reduction on power bills, but if coal is still a major generator in the early 2020s, it would lead the UK electricity grid to a cliff-edge in 2025 when coal is phased-out. A strong carbon price would keep coal generation low, encourage early closure of power plants, and make for a smoother transition to cleaner power.
The UK is already off track to meet the fourth and fifth carbon budgets at the end of the 2020s. Decisions in the Chancellor’s Autumn 2018 Budget just over a week from today must be focused on moving the carbon budgets away from jeopardy, and maintaining or increasing the carbon price to prevent coal burn skyrocketing.
Explaining our calculations
*Correction* – We now forecast coal generation lower than the initial estimates published in the original version of this article. The running hours of the non-IED compliant coal stations (Cottam, West Burton, Fiddlers Ferry) will be severely restricted from July 2020 – we had not correctly accounted for this.
We conducted a historic analysis of how UK coal running hours respond to the relative costs of operating a coal power station vs. a gas station. The analysis was conducted on a plant by plant basis for the last 2 years – the winter and summer periods were treated separately. Input coal costs were estimated using Q+1 API2 prices, input gas prices were taken as NBP SAP.
Coal burn is assumed to displace gas (increasing emissions by an average of 500gCO2/kWh vs the BEIS Reference Scenario). This is likely an underestimate of the extra emissions as it excludes Aberthaw: RWE have changed the station’s running profile & its future generation role is uncertain]
Phil MacDonald, Charles Moore.
Photo by Tomasz Sroka