Skip to main contentSkip to navigationSkip to navigation
Drax Power station, Yorkshire, UK
Rise in the carbon floor price likely to to force coal plants to run less or even switch off during summer months. Photograph: Nick Moore/Alamy
Rise in the carbon floor price likely to to force coal plants to run less or even switch off during summer months. Photograph: Nick Moore/Alamy

Carbon floor price hike will trigger UK coal slowdown, say analysts

This article is more than 8 years old

Doubling of UK carbon tax expected to force coal plants to switch off, as EU emissions trading system hits 2020 target six years early

Coal-fired power plants are set to be taken offline this year as a result of the doubling of the UK’s top-up carbon tax on Wednesday, according to market analysts.

The carbon floor price went up from £9.54 to £18.08 per tonne of CO2, raising the cost of a tonne of carbon for British power plants to £23, when allowances on the EU’s emissions trading system (ETS) are factored in.

The carbon floor price was designed to set a minimum price, related to emissions from fossil fuels, which would rise annually and encourage manufacturers to switch to greener fuels. It was introduced in 2013.

The news came as new figures released by the European commission on Wednesday showed that greenhouse gas emissions covered by the EU’s emissions trading scheme fell by 21% compared to 2005 levels last year, meeting a watershed target set for 2020 six years ahead of schedule.

Market experts believe the hike in the UK carbon floor price should be enough to force fuel switching from coal to gas – a key aim of carbon pricing – unless gas prices now rise substantially.

“We would expect to see reduced running hours for UK coal power plants from this summer,” Yan Qin, a market analyst at Reuters Thomson Point Carbon told the Guardian.

The agency believes that up to 20 TerraWatt hours (TWh) of coal generation could be replaced by gas, with uncertainty about new EU industrial emissions rules next year spurring early action.

Drax, the largest coal-fired power plant in the UK produced 26.2 Twh of electricity in 2013. “The rise in the floor price is putting additional pressure on coal-fired assets for sure,” said Dirk Forrister, the president of the International Emissions Trading Association.

The Point Carbon analysis was backed by Lakis Athanasiou, a utilities analyst at Agency Partners LLP, who told the Bloomberg news agency that “coal plants will be not only running less, they’ll be switching off. Some operators will even think of mothballing for the summer.”

The drop in greenhouse gas emissions in Europe occurred despite Europe’s GDP rise of 1.3% last year. A warm winter helped push industrial emissions down 4.9% in 2014 to 1,814m tonnes, two million tonnes below the target.

The ETS covers around two-thirds of Europe’s industrial facilities and the data suggests that the bloc will soon meet its overarching goal of a 20% cut in emissions on 1990 levels, if it has not done so already.

“If emissions have stayed flat in other parts of the economy, Europe may have already reached its overall 2020 climate target by 2013. We’ll know when that data is released later this spring,” said Damien Morris, a senior policy analyst for the environmental NGO Sandbag. “If not, we would certainly expect to see that it has happened when the full 2014 data is released next year.”

Sandbag forecasts a 29% drop in carbon emissions by the decade’s end which, along with a glut of two billion allowances, could slow the pace of climate action in the 2020’s. The EU has committed to a 40% drop in CO2 emissions by 2030.

Stig Scholjset, the head of EU carbon analysis at Reuters Thomson Point Carbon said that with market reforms already kicking in and more on the way, a corner may have been turned.

“The interesting thing from these numbers is that the market was actually short by two million tonnes last year,” he told the Guardian. “For the first time since 2008 annual emissions are actually higher than the annual allowance cap, so 2014 may be the year that oversupply peaked. It is quite possible that from now on, prices will start to rise again every year.”

Forrister, hailed “a good news day” which showed that the carbon market was working – and called on EU leaders to step up ETS market reforms, and their ambitions more broadly.

“This news shows that the 2030 target the EU has set is easily achievable and in the run-up to the Paris climate conference, European leaders can think boldly about what they may be able to do in the long term,” he said.

The ETS aims to provide an incentive for emissions cuts by setting a cap on how much carbon companies may produce and allowing cleaner firms to sell their unused allowances to more polluting enterprises within it.

Comments (…)

Sign in or create your Guardian account to join the discussion

Most viewed

Most viewed