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High Natural Gas Prices Lead to Increased Demand for Coal in Europe

US coal exports have hit a record high of 66.2 million tons, a 24 percent rise, in the first half of the year, according to the US Energy Information Administration.

With higher prices of natural gas in Europe, more than half of US exports went to Europe, or 13 percent of total US production. Opposing incentive programs in the countries are mostly to blame for the trend. As the shale revolution in the US decreases prices of natural gas to record lows, natural gas in Europe is often more expensive than importing coal. The lowered CO2 emissions permits in the EU's trading scheme have also encouraged more utilities to switch from gas to coal.

In the UK, imports of thermal coal from the US have already been on the rise, nearly doubling from 2010 to 2011.

It's still debatable, however, how long the cost advantage of coal in Europe will last. If the EU removes a significant portion of carbon allowances, prices could go up, calming widespread concerns that the current low prices are failing to encourage companies to reduce their environmental impact.

RELATED: Oil Markets Limp into Fourth Quarter

Today, the EU announced minor changes to the scheme, which will affect the timings of auctions of carbon permits.

Connie Hedegaard, climate chief at the European commission, said: "The EU [carbon market] has a growing surplus of allowances built up over the last few years. It is not wise to deliberately continue to flood a market that is already oversupplied. This is why the commission today has paved the way for changing the timing of when allowances are auctioned. This short-term measure will improve the functioning of the market."

The plans to change the auctions will go into effect next year and should help reduce the number of permits available.

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By. Carin Hall


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