Coal Consumption Increases in the EU: Is the Carbon Trading Scheme a Failure?

The EIA has reported that natural gas in the US now accounts for an equal portion of power production as coal, both contributing 32% of total generation. This led the US to reduce their carbon emissions by 92 million tonnes in 2011, a 1.7% decrease from the year before.

Unfortunately, despite having the most ambitious carbon reduction regulations in the world, Europe is now heading in the opposite direction as they saw coal consumption increase by 3.3% compared to 2010.

Germany's coal consumption increased by 1.2% compared to 2010, despite its renewable energy intentions, and large capacity of photovoltaic installations. Spain, who has also been investing heavily in renewable sources such as solar and wind, saw their coal consumption increase by more than 50%. Over all EU coal imports from the US increased by 49%.

The reason is purely financial. Coal imported from the US is very cheap, and so are the carbon permits sold under the EU Emissions Trading Scheme, prices of which have fallen 17% this year already. Energy utilities find it much more profitable to use coal power plants and buy the permits for the extra emissions, than shift to renewable energy sources, or other low carbon fuels.

Cheap natural gas is the main reason that the US has been able to reduce its carbon emissions by so much, however gas prices in Europe are no way near as low as in the US. European utilities are actually closing gas-fired power plants in favour of coal ones. Deutsche Bank AG has predicted that 6.4GW of Germany's natural gas plants will be closed by 2015. Yet at the same time the Economics Ministry in Berlin has stated that "fossil fuel-fired power plants are essential for a secure energy supply," and that 17 new power plants will be built by 2022. If some of these are to be coal powered, then it will prove the failure of the EU carbon trading scheme.

By. James Burgess of Oilprice.com