German government replies to the green party on carbon price floor - no new elements

03 May 2018 14:27 Source:ICIS

In April, the Federal government replied to the Green party of the German parliament on EU ETS related official questions.

Main points

  • The Greens questions and government reply can be found here (in German)
  • Questions from the Greens followed by the government’s reply can be found below
  • What short-term measures could be implemented if price signal of EU ETS is not high enough? The government answered:
    • EU ETS is a volume based instrument and is not oriented at prices
    • MSR review (2021) after three years is a point to review and react
    • Additional programme of measure in light of climate protection plan 2050 will be implemented – however, the government did not mention concrete measures
  • Will the government consider to dock at other pricing instrument within the EU? The government answered:
    • The government is currently not planning to join other CO2 pricing mechanisms on top of the EU ETS
  • How is the government assessing the UK climate levy? The government answered:
    • National measures need to be seen in the national context
    • For example, fossil generation, power demand, and other structural conditions of a country need to be taken into account when assessing such a measure
    • A direct comparison between UK and Germany is consequently not possible
  • When will the government make a proposal for a common German/French approach on CO2 pricing and which stance is the government taking on the possibility to work closer together with France on a CO2 minimum price? The government answered:
    • The coalition treaty foresees to stay in touch with France on those issues and use the impulses (given by the resolution of the German/French parliamentary sitting on 22 January 2018) to work on the realization of the Paris Agreement (2015) and the commitments taken on the “One Planet Summit” (2017)

Analysis

  • On all questions including a possible national carbon price floor, the answers from the government are very general with the only point that the government is currently not planning to join another CO2 pricing mechanisms on top of the EU ETS
  • In our opinion, the government’s statement does not support nor refute a potential collaboration with the French government on a possible regional carbon price floor for the power sector (see our analyst update)
  • In parallel, on Wednesday, several EU member states including France, Germany, Finland, Portugal, Sweden and Luxembourg met in Paris (press release link) to discuss the long-term EU strategy in the context of the Paris agreement – the EU ETS price and national carbon price floors were also discussed
  • In our opinion, despite the current momentum initiated by France, we do not at this point see Germany join a regional carbon price floor for its power sector
    • It is more likely that Germany will handle its coal phase-out following the nuclear phase-out approach negotiating directly with companies for the progressive closure of their coal power plants
    • This will allow the government to have more control over the timeline as it has to juggle at the same with a nuclear phase out by 2023 and energy security is a discussion point with both measures on the table
  • With that said, although full speculation at this point, it not impossible in our opinion that the environment minister (SPD) would push for the upcoming coal phase-out commission to explore alternative instruments (e.g. carbon price floor) to implement the coal phase-out
    • We do not however see the CDU which controls the economy and energy ministry, which itself overseas the coal phase-out commission, getting on board with the idea

Yann Andreassen is Senior Analyst - EU Carbon & Power Markets at ICIS. He can be reached at Yann.Andreassen@icis.com

This is a condensed version of our analysis for ICIS EU carbon subscribers that was originally published on 26 Apr 2018 12:00 CET.

Our ICIS EU carbon customers have access to extensive modelling of different options and proposals. If you have not yet subscribed to our products, please get in contact with Neil Dewet (Neil.Dewet@icis.com).

By Staff Reporter