France to impose carbon price floor on utilities from Jan. 2017

Published 20:13 on April 26, 2016  /  Last updated at 09:25 on April 27, 2016  /  EMEA, EU ETS  /  No Comments

France will set a domestic carbon price floor for power generators from next year, the country’s environment ministry said Tuesday, though it was unclear whether the country would also introduce measures to counter the resulting cut in demand for CO2 allowances.

France will set a domestic carbon price floor for power generators from next year, the country’s environment ministry said Tuesday, though it was unclear whether the country would also introduce measures to counter the resulting cut in demand for CO2 allowances.

The ministry confirmed an announcment by French President Francois Hollande on Monday, who also said the country would seek to close some of its nuclear reactors from 2018 and would make a formal proposal to introduce a price collar on EU Allowances in Europe’s carbon market.

France’s domestic price floor would drive its utilities to switch from burning coal to cleaner gas and avoid 12 million tonnes of CO2 a year, almost half the country’s power-related emissions, the ministry said, adding that details on how the price floor will work are to be proposed in the autumn.

“This has wide government and industry support and is likely to pass smoothly,” said Frédéric Dinguirard of France-based think-tank The Shift Project.

However, observers pointed out that the emissions saved by France could end up in the atmosphere the country or its emitters sell the unused carbon units without additional safeguards.

Dinguirard said that while no details had emerged of measures to counteract the resulting reduction in EUA demand, France was likely to act on this as it had recently been promoting its price corridor plan to support EU carbon prices and had derided the effect of other unilateral mechanisms on the EU Emissions Trading Scheme.

France’s domestic carbon price floor would follow that of the UK, which since 2013 has taxed thermal utilities for their emissions on top of their obligations under the EU ETS.

The UK faced criticism for the move because its floor price failed to include measures to prevent the resulting unused EUAs from being used elsewhere, therefore weakening the EU ETS price signal for other member states.

France’s floor price is unlikely to have nearly as big an impact on the market as the UK’s because French utilities emit far less CO2, with around 90% of the country’s electricity generated from nuclear or renewables.

The UK’s power sector emissions were around 160 million tonnes in 2012 but had fallen 37% to 101.5 million  tonnes by 2015.

GIVING MONEY AWAY

“If it’s purely domestic, then France’s price floor is going to be slightly bearish [for EUAs] unless it has some sort of cancellation mechanism,” said Energy Aspects analyst Trevor Sikorski.

“And such a mechanism would be hard to get agreed with the EU.  [France] could do it unilaterally, but then they’re just giving away money,” he added, referring to the idea that the country would effectively decline to sell its share of EUAs at auction when secondary market prices remain below its floor price.

The Shift Project’s Dinguirard said that France’s preferred option would be for its EU carbon price corridor idea to gain the required support of a majority of EU lawmakers, but he added that this was unlikely in the near term as Germany was reluctant ahead of its 2017 elections and other member states had greeted the idea with a cool reception.

As a fallback, France could urge other willing EU nations to adopt national floor prices, he said, with Ireland, Netherlands, Belgium, and Norway all likely candidates to join the UK.

“These countries are connected or will be connected to the UK grid, and therefore reinforce the efficiency of UK’s price floor and coal phase-out,” he said, referring to the country’s plans to shut all its coal-fired power plants by 2025.

He added that these countries should also each implement mechanisms to withhold EUAs to offset the impact of their carbon floor prices on the wider EU ETS.

OTHER MEASURES

France also pledged to double the number of wind farms, triple the amount of electricity it sources from solar, and increase the amount of heat produced from renewables by 50% – all as part of its goal to reduce the share of nuclear in its energy mix to 50% by 2025 from 75% currently.

Hollande added that to help fund this initiative, the country would become the first to issue green bonds.

The country’s so-called ‘Green Transition’ programme, which also includes a domestic carbon tax for non-ETS sectors that will rise from €56/tonne in 2020 to €100/tonne in 2030, was passed into law last summer.

It also calls for fossil fuel consumption to be cut by 30% below 2012 levels, and for renewables to make up 32% of energy consumption and 40% of electricity production, all by 2030.

By Ben Garside – ben@carbon-pulse.com

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