Carbon price floor firmly on agenda in Germany as election looms

Reform of the European carbon market post-2020 is not ambitious enough to achieve Germany’s climate targets and a regional carbon price floor is the best alternative, according to experts.

“Carbon prices are very unlikely to increase much in the EU emission trading system (ETS) in its current form, as well as under post-2020 reform proposals,” said Georg Erdmann, professor at TU Berlin university and member of an expert committee advising the government in energy matters.

A levy on carbon emissions or an ETS with a carbon price floor could achieve de-carbonisation efficiently, he said.

As an EU agreement on ambitious emission reduction measures looks unlikely, it would make sense for Germany to have a carbon levy or carbon price floor either unilaterally or together with nearby countries that were willing to join, Erdmann said.

Germany is on course to miss its 2020 emissions reduction target while it set ambitious 2030 goals for various sectors in a climate plan adopted by the government last year.

To hit the interim target for 2030, emissions from coal-fired stations need to be reduced by more than 50% compared with current levels, a spokesperson for the environment ministry said.

In 2015 the German energy ministry proposed a climate levy on fossil fuel generation to achieve the country’s 2020 emission reduction target, but the plan was scrapped amid outcry from the coal industry.

It was replaced with less ambitious climate measures, most importantly the removal of 2.7GW of lignite-fired plants into a reserve in exchange for compensation (see ICIS Briefing on Germany’s power reserves) .

New government

A measure to increase the cost of emissions has proven difficult to achieve. Therefore any new German government to be formed after Sunday’s elections is unlikely to try to implement something similar in the short-term in order to achieve the 2020 target, Philipp Litz, advisor at think tank Agora Energiewende, told ICIS in Berlin on Wednesday.

ICIS analyst Philipp Ruf added that a carbon price floor is unlikely to be in any new coalition agreement. The Green party, which has the most ambitious coal reduction proposals, appears to aim for the closure of specific plants as opposed to a market-based mechanism.

Litz added that major German parties agree the country should push for a measure like an ETS price floor in the medium- to long-term.

This would have support from German municipal and regional utility union VKU. “It seems very difficult to achieve carbon market reform on a European level that is ambitious enough to incentivise fuel switching in Germany in favour of gas-fired plants.

“Therefore, VKU is advocating additional measures at an international level for making emitting CO2 more expensive,” a VKU spokesperson said.

VKU is against measures like the already approved 2.7GW lignite reserve on grounds they considerably distort the market.

Difficult

EU-wide measures to increase the cost of emissions are widely considered the best way to achieve de-carbonisation, but these have proven difficult to achieve due to opposition from some member states.

If more ambitious measures are impossible to achieve, a regional carbon price floor could be the best alternative, Litz said.

Germany could find support for such a measure from some nearby countries. The previous French government planned to implement a national carbon price floor, although this failed to come to fruition.

While a carbon price floor in France would have little impact as the country relies heavily on nuclear capacity, the same measure would have a major influence on other EU markets when implemented in Germany due to the amount of coal-fired capacity the country has and its interconnectedness with other markets, Ruf said.

As a next step the German government is due to adopt an action programme for its recently approved long-term climate plan by the end of 2018 and additional measures to get closer to the 2020 target will also be discussed in this context, according to the environment ministry spokesperson. laura.raus@icis.com