Owners of European coal-fired power plants are closely following the development of the price for emitting CO2. In less than a year, the price for CO2 allowances in the European Union’s Emissions Trading System (known as the EU ETS) have more than quadrupled. The price for emitting a single ton of CO2 reached EUR 20 in August this year, which is a ten year high. These developments are tipping the balance in favour of wind and solar power on European electricity markets.

Price developments in the EU carbon market

Commenting on the price developments, the Danish Minister for Energy, Utilities and Climate, Lars Chr Lilleholt, stated ‘It is a large victory for the climate when green energy is cheaper than black energy. The high price on CO2 emissions is hastening the demise of coal and rapidly accelerating the EU’s transition to a low carbon society’.

Concretely, the high CO2 prices mean that coal-fired power plants can have a shorter lifespan than previously anticipated.

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Reform of the EU ETS is a success
For many years, the EU ETS has been characterised by an excess of CO2 allowances, which has made it relatively inexpensive to emit CO2 gases. Therefore, a number of EU member states, including Denmark, have repeatedly stressed the need to urgently institute measures that would reverse the ETS’ fortunes when a reform of the ETS for the 2021 – 2030 period was due to be adopted.

Negotiations to reform the ETS were concluded in 2017 and entered into force in February 2018. The subsequent agreement included provisions to significantly strengthen the ETS. Excess CO2 allowances are now quickly taken off the market and transferred to a reserve. A large number of the said allowances will also be permanently cancelled. The cancellation can mean that billions of allowances will never be placed on the market again, thus increasing the cost of pollution.

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‘I am pleased we negotiated a robust EU ETS agreement. In less than a year, it has become four times as expensive to emit CO2 in the EU. This is concrete evidence that the EU has a common desire to intensify its climate efforts via effective, market based regulations. This is a victory, which points towards a bright future for an ambitious green transition in all of the EU, which is driven by the market rather than public subsidies’, said the Danish Minister for Energy, Utilities and Climate, Lars Chr Lilleholt.

-Source: The Danish Ministry of Energy, Utilities and Climate