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Carbon market watches closely as German elections loom

20 Sep 2013 18:47:51 | edcm

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The fate of the carbon back-loading proposal hangs on the outcome of this weekend’s national elections in Germany, as Europe’s most powerful member state has repeatedly pledged to only take a position as a new government on the temporary carbon market fix.

The vote is crucial to breaking the internal stalemate on the proposal between the two ministries overseeing energy issues in the country.

“If Germany supports the measure, it will most likely reach the qualified majority in the Council, as more member states will likely support the back-loading. If not, the future of back-loading is unclear,” said German analytic firm Tschach Solutions, now part of ICIS.

Apart from promising a final position on back-loading, the vote outcome will also determine if and how Germany reshapes its domestic energy policy and emissions profile as its renewable policy is in crisis and more nuclear shutdowns could spark a capacity shortfall.

ICIS presents the main points of the four largest political parties – the current government made up of the Christian Democrats (CDU/CSU) and the Free Democrats (FDP) and the main opposition parties made up of Social Democrats (SPD) and the Greens.

CDU/CSU

Chancellor Angela Merkel’s centre-right party – which is currently ahead in the polls – has expressed cautious support for back-loading and takes a measured stance on the issue. Much will depend on who the party enters into a coalition with, to sway it for or against.

Merkel has also advocated linking the supply of emission certificates to actual economic growth in a speech held during an energy industry event in Berlin this summer. At the time she said that although there was opposition to back-loading in Germany, the oversupply in the EU ETS had to be addressed to favour cleaner generation.

But the CDU/CSU wants to slow the growth of renewable power. It acknowledges that in the near future coal and gas plants are needed and says that carbon-intensive lignite can play an important role, with the use of technology.

FDP

If economy minister Philipp Rosler’s liberal FDP party, the current coalition partner of the governing CDU/CSU party, fails to pass the parliament voting entry barrier of 5% this could be bullish for EU allowances (EUA) prices. But latest polls on Friday showed the party was expected to secure more than this in the voting share.

Rosler is a key opponent of the back-loading proposal within the government and contributed to the internal stalemate.

The FDP proposes more drastic changes also to the current renewable subsidy scheme, in line with its liberal market views. It wants to scrap solar power and onshore wind subsidies in certain locations. The FDP also wants to replace the current feed-in tariffs with a quota model, whereby utilities’ production mix has to include a certain share of renewable power generation.

SPD

The main German opposition party, the SPD, along with the Green Party, has put pressure on the government to support the back-loading proposal in a clear show of support.

The SPD and Merkel’s CDU have also voiced support for raising the EU’s carbon reduction target for 2020 to 30%, up from the current 20% - which would also be bullish for carbon prices.

In addition, the SPD is critical of the current government for its management of the Energiewende (the energy transition), claiming that too many opposing interests have fostered an uncertain investment climate.

The SPD wants the energy ministry to combine competencies in the energy area, which are currently shared by the economy and the environment ministry, and which have clashed over back-loading, as well as a federal grid agency.

The SPD also wants renewable power to be offered directly on the exchange rather than being sold to transmission grid operators.

The Greens

A strong Green Party result would again be bullish, signalling more support for environmental policies such as a carbon tax and back-loading.

A member of the Green Party has previously said that its members were discussing proposing the introduction of a carbon floor price of around €15/tonne of CO2 equivalent (tCO2e) ( see EDCM 7 May 2013 ) – more than threefold the current EU emissions trading carbon allowance benchmark price.

The Greens focus on cutting costs but keeping the current feed-in subsidy system largely intact. This is to be achieved by cutting the exemption for large electricity users which do not have to pay the renewable subsidy surcharge.

The transition to a renewable-based German power market should take preference over any support for conventional power plants, it says. Martin Degen and Marie-Louise du Bois

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