ICIS Power Perspective: Dutch carbon price floor bill sent to Parliament

This story has originally been published for ICIS Power Perspective subscribers on 05 June 2019 at 15:28 CET.

On Tuesday 4 June the Dutch government sent its carbon price floor bill to Parliament, with a vote likely to take place in the autumn. The floor outlined in the bill is the same as that proposed in January in the climate agreement, starting at €12.3/tonne in 2020 and increasing to €31.9/tonne by 2030. While the government expects the floor to remain below the ETS price going forward, our modelling suggests that the floor will have an impact in 2029 and 2030 as our long-term ETS forecast falls below the floor price level.

Background

• The Dutch government initially proposed the carbon price floor in October 2017 in its coalition agreement, with the price expected to start at €18.0/tonne in 2020 and increase to €43.0/tonne by 2030
• When the ETS price drops below the floor price, producers from thermal power plants would pay the difference in the form of a tax
• However, following fears that the price was set at a level that would push plants offline and endanger security of supply, a new lower floor level was proposed in the climate agreement
• The government now expects the floor price to remain below the ETS price through to 2030, which means that it would have no impact on reducing emissions on collecting tax revenue. Instead the measure would provide incentive for sustainability by offering certainty to the market should the ETS price fall below the government’s expectations

Analysis

• ICIS modelling (using our own carbon price expectations), suggests that the carbon price floor will remain below the EU ETS between 2020 and 2028
• However, the proposed price floor would kick-in between 2029 and 2030 as the ETS price falls below the floor level

• The annual price impact compared to the base case would be +€0.41/MWh in 2029 and +€0.69/MWh in 2030

• Dutch power sector emissions in 2029 and 2030 would be on average 2.0m tCO2 lower than the base case. However, the net impact would be minimal, with a 0.8m tCO2 average increase in German power sector emissions in 2029-30

Next steps

• The Dutch Parliament can be expected to vote on the bill after the summer recess, with the vote most likely to take place in the autumn
• Given that the measure has broad cross-party support, we expect the bill to pass easily
• The carbon price floor would then be implemented from 1 January 2020

Matthew Jones is Senior Analyst – EU Carbon & Power Markets at ICIS. He can be reached at Matthew.Jones@icis.com

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