German lignite reserve to fall short of CO2-cut goal, hurting EUAs -analysts

Published 18:16 on July 6, 2015  /  Last updated at 16:14 on November 2, 2015  /  EMEA, EU ETS  /  No Comments

Germany’s new plan to curb its GHG emissions by 2020 will likely fall short, meaning Europe’s top emitter will require a supplemental policy that will likely be bearish for EU emissions prices, analysts said on Monday.

Germany’s new plan to curb its GHG emissions by 2020 will likely fall short, meaning Europe’s top emitter will require a supplemental policy that will likely be bearish for EU emissions prices, analysts said on Monday.

Germany last week announced it would opt to pay to idle around five of the country’s oldest lignite-fired power plants with total capacity of 2.7 GW, rather than force the entire ageing fleet to buy EU Allowances if they exceed set emissions targets.

The adopted strategy forms part of the country’s domestic pledge to cut its emissions by 40% below 1990 levels by 2020. The German government has estimated that it will need to find additional reductions in the neighbourhood of 22 million tonnes from the power sector in 2020.

The mothballed plants will be put in a reserve to support baseload generation levels, leading to a reduction of around 14.5 million tonnes of CO2e during each of the final four years of the decade, analysts at London-based Energy Aspects said on Monday.

“(However) given prevailing price relativities, there will be an offsetting increase in mid-merit coal-fired plants, which had reasonably low levels of generation in 2014. This would result in emissions of 10.5 million tonnes,” they said, adding both would combine for a net reduction of just 4 million tonnes in 2020.

Analysts at ICIS-Tschach echoed this view, estimating that the plan will lead to cuts of a mere 5 million tonnes by the end of the decade, well short of the 11-12.5 million the German government forecasts its policy will achieve.

Germany will also pursue emissions cuts through boosting energy efficiency and combined heat and power (CHP) generation, saving a further 11 million tonnes of CO2, plus up to an additional 1.5 million tonnes from yet-to-be-negotiated reductions at other lignite plants if the lignite reserve delivers the lower end of government expectations.

However, if the lignite reserve misses the government’s expectations, the entire strategy will likely fall short of hitting the 2020 goal, the analysts said.

The lignite reserve was agreed as a compromise between government and industry, after economy minister Sigmar Gabriel’s initial proposal to force plants to buy EUAs divided some lawmakers in the ruling coalition parties and was slammed by two of the country’s main workers’ unions and industry groups.

However, in a sign of how the compromise plan is still splitting the government, environment minister Barbara Hendricks has appeared to distance herself from the new policy.

In a column published in De Welt newspaper last Friday, she said the plan offered a much more expensive alternative to the original levy proposal and its ability to close the required emission gap remained to be seen.

By Mike Szabo and Ben Garside – news@carbon-pulse.com

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