Coal’s carbon impact is clear from the fact that it produces 20% of electricity and 65% of EU power sector emissions. But even with EU coal prices at a five-year high, we are unlikely to see short-term European coal emissions reductions. Emissions Trading System prices would have to double to push coal out of the EU electricity mix, says Paul Deane of University College Cork’s Environmental Research Institute.
European coal prices reached a five-year high of $100 per tonne this month. Higher demand in China, due to lower domestic production and stock shortages after a hot summer, are pulling international coal cargoes east and driving prices up.
This should have been good news for CO2 emissions in Europe. But soaring gas prices mean that, in the short term, there is little cause for celebration.
Coal generates over 20% of electricity in Europe but is responsible for approximately 65% of electricity CO2 emissions, with Germany, Poland and the Czech Republic the major centres of coal consumption.
A unit of electricity generated from coal can produce up to three times more CO2 than one generated from natural gas. Natural gas has less impact on air quality and integrates well with wind and solar.
High-priced coal is less likely to be used to generate electricity and the recent surge in carbon price in the European Union Emissions Trading System (EU ETS) is seen as a positive step in the push to rid EU electricity markets of coal. But this won’t be enough to kill coal.
A doubling of the EU ETS carbon price from €22 per tonne to €44 per tonne is required to make coal-fired electricity more expensive than gas and knock coal out of the mix
The reason is that gas prices have also increased significantly, and this impacts the merit order or economic ranking of which power plants are used to generate electricity.
Think of the merit order as a stack of coins with the most expensive coins on top and cheapest at the bottom. For coal to be ‘out of merit’ it needs to be at, or very near, the top.
Higher carbon prices help push coal up the stack and this also impacts gas. However, it is the price differential between gas and coal that has a bigger impact on their respective places on the stack.
For an increasing gas and coal price differential a higher carbon price is required to make electricity from gas cheaper than electricity from coal.
Let’s take a snapshot of today’s fuel prices in common units and run some numbers to convert them to electricity generation costs.
Coal is trading at €3 per gigajoule and natural gas is trading at €9 per gigajoule, while the ETS carbon price, at €22 per tonne, adds €2 per gigajoule to coal and €1 per gigajoule to gas fuel prices.
This means a unit of electricity (1 MWh) produced from gas would cost €73 while the same unit of electricity from coal is cheaper, at €60.
At these prices, a doubling of the EU ETS carbon price from €22 per tonne to €44 per tonne is required to make coal-fired electricity more expensive than gas and knock coal out of the mix.
New coal-fired capacity of 6.7 GW is either under construction or expected to come online by 2025 in Poland, Germany, Greece and Croatia
Higher fossil fuel prices are good for the financing of renewables such as solar and wind because the renewables become relatively cheaper. This is good news, but in the short term strong emissions reduction can best be delivered by reducing coal’s contribution to the electricity mix.
Other measures are also available to reduce emissions from coal plants. Austria, Denmark, France, Germany, Italy, the Netherlands, Finland, Portugal, Sweden, Ireland and the UK have all recently announced the phase-out of all coal-fired capacity within the next decade while in Belgium the last coal-fired power plant was retired in 2016.
At the same time, though, new coal-fired capacity of 6.7 GW is either under construction or expected to come online by 2025 in Poland, Germany, Greece and Croatia.
It remains to be seen how much of this will ultimately be built. Based on current prices and the political landscape, it is hard to foresee a positive prospect for coal in Europe.
But even if the long-term outlook for coal remains dim, its current spike in price is still no cause for celebration.
Paul Deane is a member of the Energy Policy and Modelling Group in the Environmental Research Institute, University College Cork, Ireland.