Our new report investigates how coal power plants just outside European borders are supplying electricity to the EU while avoiding the carbon price.
EU countries are increasingly importing ‘tax-free electricity’ from outside the EU. Often, this electricity is generated with coal, in new ‘offshore carbon havens’ such as Turkey, Ukraine, Morocco and the Western Balkans. Grid connections through new electricity interconnector cables are growing fast – and so is the fleet of new coal power plants just outside the EU borders.
Allowing this carbon leakage to continue will undermine EU emissions cuts, as well as incentivising further use of coal in neighbouring countries. The solution is to apply a carbon price on electricity imports – also known as a border carbon adjustment (BCA). The European Commission are now investigating the idea, at the behest of new Commission President Ursula von der Leyen.
This report analyses:
• How much CO2 leakage is there from electricity today?
• What growth in imports should we expect?
• Could a carbon border adjustment on electricity work to reduce carbon leakage?
Download the full report, or read the key findings below.
“Europe’s carbon price is driving a new wave of coal plant building just beyond its borders. This high-carbon power is sneaking into the EU grid.
The solution isn’t too complicated though: a border tax on the carbon in this imported electricity. With this one new policy, we can spread the emissions-cutting influence of the EU beyond its borders, and help neighbouring countries build clean energy faster.”
“Europe must convince other economies to accelerate on climate actions while addressing the risk of carbon leakage at EU level. In the absence of equivalent carbon pricing for importers and European industry, border adjustments can be an option, whether in the form of a tax or a special ETS participation mechanism.”
“In the Finnish context electricity from Russia is an issue of outsourcing emissions. We in the EU are on a clear path to a renewables based electricity system, and our neighbors should be as well.
If we set up a carbon border tax for electricity, we would avoid exporting our emissions and bring our neighbors on board the shift to renewables.”
EU countries are increasingly importing ‘tax-free electricity’ from outside the EU
Net imports of electricity into the EU Emissions Trading System countries were up from 3TWh in 2017 to 21TWh in 2019. All the imports are from countries that have zero or near-zero carbon pricing. While not all of this is coal power, it is on average more carbon intensive that EU generation.
The main exporters to the EU are Russia, Ukraine, Turkey, and the Western Balkans.
We estimate imported electricity emitted 26 million tonnes of CO2 in 2019 – more than the annual emissions of Italy’s coal fleet, the EU’s 6th largest.
Had imports paid the EU ETS carbon price in 2019, they would have generated €630m of revenue for EU member states.
‘Offshore carbon havens’ are building coal plants to meet EU power demand
Up to 57GW of new coal power could come online in connected or soon-to-be connected countries.
Plans exist to increase interconnection between EU and non-EU states by 31% by 2030. This would see 5 additional countries without a carbon tax connected to EU grids.
Imports are already more carbon intensive, on average. We estimate that out of the 21 cross-border interconnectors, 17 connect an EU grid to a more carbon intensive non-EU grid.
Countries like Greece, Spain, and Croatia are most exposed. They have ambitious renewable electricity targets, and in some cases coal phase-out legislation, yet will remain exposed to carbon intensive imports. Without intervention, emissions could be “offshored” rather than genuinely reduced.
Electricity imports should pay a border carbon adjustment
Applying a Border Carbon Adjustment (BCA) for electricity is easier than for other internationally traded products (i.e. steel or cement), as flows of electricity are transparent, and the relatively simple production chain allows tracing of carbon emissions. Without ETS free-allocation, administration is easier, and trade politics are far simpler.
A border carbon adjustment on electricity would not only restore the integrity of EU climate policy, but also incentivise low-carbon electricity generation in neighbouring states, and the spread of carbon pricing.
Click here (PDF) to read further comments on the report from Eurelectric, MEPs, and campaigners in Spain, Finland and Romania.
Sandbag is an independent, not-for-profit climate & energy think tank. We receive funding from the European Climate Foundation, the Esmee Fairbairn Foundation, and many others.