German reserve for dirty coal plants hurts carbon demand

Bloomberg

Germany’s plan to place lignite-burning power plants into a reserve from later this year may cut demand in Europe’s carbon market, according to a former government official.
The €1.6 billion ($1.8 billion) coal reserve may reduce demand for carbon allowances because it would lower total emissions and trim the need for utilities buying permits in advance, Franzjosef Schafhausen, a former director-general for climate policy, European and international policy at the nation’s environment ministry, said in an interview at Carbon Expo in Cologne, Germany.
The plan for assets owned by utilities including RWE AG and Vattenfall AB was approved Friday by the European Commission, 11 months after it was first proposed. The German government is pressing for additional cuts beyond those provided by the carbon market in a bid to reduce emissions by 40 percent by the end of the decade from 1990 levels. Levels were 27% lower by the end of last year.
The preferred solution for emission cuts is a higher EU carbon price, which is unlikely even after the region agreed to install by 2019 a reserve for permits to deal with a glut equivalent of a full year of supply, Schafhausen said. Permits have dropped 80 percent from a 2008 peak on ICE Futures Europe in London.
“I’m personally of the opinion that we need some additional policies and measures to meet the 40 percent target,” Schafhausen said. The planned stability reserve “is too late to get emission reductions between 2019 and 2020, so we have to solve that problem on a domestic basis.”
It’s unlikely that a floor price or corridor in the carbon market, as proposed by France and under debate in Germany, would be the best solution, Schafhausen said. “Governments every time fail when they decide to create results which should be created by the market.”
A European Commission official said Wednesday that additional climate policies may boost costs in Germany.
“There’s quite a few things to speak in favor of having a single price,” Peter Zapfel, coordinator of the emissions trading unit at the European Commission, told reporters in Cologne. “If Germany says that the emissions trading system is not enough for them, they want to go out of the European arrangement and have their own system, then they have a much higher price and a much bigger competitiveness debate.”