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Ambitious Energy Goals Are Hurting European Businesses

May 25, 2021
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By Paul Homewood

 

h/t Dennis Ambler

 

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European carbon prices are running at record highs these days, and they have more room to rise, according to some analysts and traders. On the face of it, this is excellent news: the costlier that carbon emissions get, the more that businesses should be motivated to invest in cleaner sources of electricity generation. In practice, things are not as simple as this.

Earlier this year, when carbon prices started rising fast, European industrial associations called on EU authorities to set a so-called border tax for the carbon emissions generated by competitors outside the 27-member bloc.

“In the past, we did not have a significant problem with the carbon price because it was so low,” the FT quoted Axel Eggert, director-general of the European Steel Association, as saying last month. “Now, with the increasing price, we get into a real problem. One is our global competitors do not have those carbon constraints . . . the second point is it makes it much more difficult to invest in new technologies.”

That was when carbon permits were trading at around $47 per ton. Earlier this month, carbon permit prices topped $56 per ton—more than double on pre-pandemic levels—and some analysts expect the price to rise to over $100 per ton of carbon emissions before too long.

The European Emissions Trading System is quite simple. The EU sets certain carbon allowance limits for all businesses. Businesses that generate carbon dioxide emissions above these limits can buy permits to do so on the free market, while companies that are green and emission-free can sell such permits. The price spike in permits followed a revision of the EU’s emission reduction goals amid the pandemic, bringing some significant deadlines forward.

According to recent research from Germany, cited in Eurasia Review, this revision in climate targets and its effect on the Emissions Trading System could lead to the complete phasing-out of coal generation capacity in the EU by the end of the current decade.

“Once the EU translates their recently adjusted target of cutting emissions by at least 55% in 2030 in comparison to 1990 into tighter EU ETS caps, the electricity sector will see fundamental changes surprisingly soon,” one of the lead authors of the study, Robert Pietzcker from the Potsdam-Institute for Climate Impact Research (PIK), said.

“In our computer simulations of the new ambitious targets, this would mean that renewables would contribute almost three fourths of the power generation already in 2030 and we would reach zero emissions in the power sector as soon as by 2040. Once the change is initiated, it can gain speed in an unprecedented way.”

The result of these compute simulations is certainly impressive. However, there is one thing that it does not seem to have addressed: grid reliability. FT columnist John Dizzard wrote in a recent article how the spike in carbon prices had led to a parallel spike in natural gas prices and, somewhat oddly, an increase in coal-fired power generation, especially in Germany.

At the time of writing, Germany was generating about a tenth of its power from coal-fired plants and another 16 percent from nuclear power plants, according to electricityMap. Ten percent of the total is not an overwhelming amount of dirty fossil fuel power, but it is essential baseload—a concept that energy transition computer simulations regularly tend to overlook.

“Coal-fired and nuclear generation still provide a significant share of the country’s [Germany’s] power, but they are also a disproportionate share of the electric grid’s ‘stability’, or damping down disturbances in electricity flows that can be created by fluctuations in wind and solar generation,” the FT’s Dizzard noted, adding that Brussels might have done well to have considered the baseload implications of a shift to a predominantly renewable grid.

To sum up: the EU ETS is making European businesses less competitive than foreign rivals because carbon prices are soaring, and Brussels is still reluctant to impose a carbon border tax on imported goods. At the same time, planned changes to the electricity supply that these businesses use may make this electricity costlier—notice how the countries with the highest electricity prices are, with a couple of exceptions, also most of the countries with the most renewable generation capacity per electricityMap. These changes may also make it less reliable, and this can be an acute problem.

Despite these costs and supply security, EU authorities appear satisfied with where carbon prices are heading. In fact, as CNBC reported earlier this month, the man who heads the European Green Deal, Frans Timmermans, said that carbon prices need to rise much higher to ensure that the EU’s new emission reduction goals are met. Apparently, the cost at which these goals will be achieved, be it loss of competitiveness and higher prices for consumer goods when the EU is still suffering the fallout of the pandemic, does not figure into the equation at all.

https://oilprice.com/Energy/Energy-General/Ambitious-Energy-Goals-Are-Hurting-European-Businesses.html

 

As the article points out, this whole problem is the direct and inevitable result of the EU’s decision to mandate greater emission reductions. As I noted a couple of weeks ago, one effect of rising carbon prices is that demand for gas has increased, as generators switch away from higher carbon content coal. This not only increases power prices, it also forces up gas prices as markets tighten.

Naively, some have called for carbon border taxes. Not only would these put everybody’s cost of living, they would inevitably lead to retaliation from China and other countries, damaging European industry even further. The whole idea of such a Fortress Europe is absurd, and it already looks as if the German government is getting cold feet, scared that it would badly damage German exports to Asia:

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LISBON (Reuters) — Germany wants the European Union to create a "climate club" with countries like the U.S., Japan and possibly even China to avoid trade friction linked to green tariffs such as a planned carbon border levy.

German Vice Chancellor and Finance Minister Olaf Scholz said on Saturday after talks with Portuguese Prime Minister Antonio Costa, the current holder of the EU’s rotating presidency, that Europe must engage with countries to agree joint rules and common standards on how to reduce carbon emissions.

Scholz said climate protection measures would have an impact on the competitiveness of German and European companies, especially those in energy-intensive sectors.

"And so it is a wise thing not just to discuss about how the European Union can do this and how we could avoid to have difficulties in the competition on the global market afterwards," he said.

The EU should approach countries such as the United States, Canada, Britain, Japan and China to discuss and possibly agree on the same steps and principles.

"And to do this, it’s a good idea to discuss about having a sort of a club, of people willing to do similar things and not competing each other, but fighting for a better climate development in the world."

https://asia.nikkei.com/Spotlight/Environment/Climate-Change/Germany-eyes-EU-climate-club-with-US-Japan-and-China?mc_cid=a6ad93cb8c&mc_eid=870a48a53b

 

The concept of a “climate club”is nothing more than fudge. Either China will start making drastic emissions cuts, or it won’t. I think we all know the answer to that. What Scholz is really proposing is to let China off the hook, in return for a few vague, meaningless promises to do something in the distant future.

32 Comments
  1. Brian Smith permalink
    May 25, 2021 6:28 pm

    The Carbon tax regime implemented by the EU will be their next “big” mistake following on from the debacle of their Covid vaccination planning. The first time the lights go out in an EU country (or countries) the reaction will be orders of magnitude worse than what followed the failure of the Brussels bureaucracy to secure vaccine supplies.

  2. Gamecock permalink
    May 25, 2021 8:09 pm

    “In our computer simulations of the new ambitious targets, this would mean that renewables would contribute almost three fourths of the power generation already in 2030″

    On Fantasy Island.

    At 3/4s, actually probably at less than 1/3, the business case for backup power generation is long gone.

    When renewables contribute three fourths, there will be no backup. None. Perhaps as frequently as weekly, there will be major blackouts. You can’t run a major economy on renewables. The question remains, how far will the people of the UK let this go? It will fail. Do you stop it this year? In five years? By 2030, it will certainly be too late. Everyone who can leave will have gone.

    • Mack permalink
      May 25, 2021 10:25 pm

      Spot on Gamecock. None of which comes as a surprise to anyone with an even basic understanding of how a modern grid functions. Indeed most energy specialists, who haven’t already sold their souls to the green wet dream, have been warning of this looming ‘blackout’ catastrophe for years. One can only hope that when reality really bites the masses, a proper pushback commences, albeit we are now so far down the renewable rabbit hole that the retreat, when it comes, will neither be swift nor painless.

    • Mewswithaview permalink
      May 26, 2021 7:51 am

      South Africa with its scheduled load shedding is probably the current example of what we will likely experience.

      1. Lack of future investment in reliable power generation. The return on investment for plant is not short, overcoming planning objections and protests takes years.

      2. Ageing plant that requires more downtime to maintain.

      3. The outages happen at random, since announcing them only allows time for thieves to prepare for the time window in advance.

      Why South Africa’s electricity blackouts are set to continue for the next five years
      https://mg.co.za/opinion/2021-04-06-why-south-africas-electricity-blackouts-are-set-to-continue-for-the-next-five-years/

      Eskom, the country’s power utility, recently admitted that such interruptions are likely to persist for as long as the next five years. This is because of the increased down-time of the rapidly ageing fleet of coal plants. But it is also due to delays in setting up new power plants.

      The decreasing performance of the existing Eskom plants is evident in the steady decline of the energy availability factor. This is a measure of the percentage of total electricity generated compared to what would be achieved when every plant was functioning. The energy availability factor is currently at about 65%. This means that on average 35% of Eskom’s power plants are standing idle at any particular time due to faults or maintenance.

      One other side effect companies providing uninterruptable power supply (UPS) equipment to South Africa lost money on warranty servicing.

  3. It doesn't add up... permalink
    May 25, 2021 8:16 pm

    Including those in the UK

    https://image.vuukle.com/9ffc6604-feed-474e-a82d-c2de2f561502-393e15df-1ccd-461b-9ea0-66e1ea3f1840

    Our electricity prices have been high and supply has been tight over the early months of this year, but now carbon pricing and the new UK carbon price mechanism are taking over in setting a high floor.

    https://www.current-news.co.uk/news/uk-ets-launches-with-uka-futures-opening-at-50

    Happy levelling up! Happy heat pumps!

    I rather think that with this sort of support, Dogger Bank may never trigger its CFD, and simply take market prices, even at the expense of getting no compensation at times of overproduction.

  4. Penda100 permalink
    May 25, 2021 8:35 pm

    And the sheeple all started bleating “Renewables Good, Fossil Fuels Bad, Renewables Good, Fossil Fuels Bad”. Then the lights went out, at which point Napoleon blamed the agents of Snowball – a known denier.

    • It doesn't add up... permalink
      May 25, 2021 9:33 pm

      …but Napoleon didn’t have a leg to stand on.

  5. markl permalink
    May 25, 2021 10:44 pm

    Meanwhile the largest CO2 emitting country continues to increase their output in both CO2 and goods produced. By the time/if (I doubt it) China is held accountable they will be the manufacturing center of the world.

  6. bobn permalink
    May 25, 2021 11:22 pm

    The warning has been sounded – this is unsustainable and uneconomic.
    And the EU loonies response
    We’ll make a club of claptrap, nonsense and lies.
    What planet are these morons on if they think China will ACTUALLY abandon fossil fuels. So far chinas only said it’ll think about reducing after 2030, until then its digging coal as fast as it can. AFTER 2030 IT’LL DIG MORE COAL AND TELL MORE LIES.
    Fancy another virus from the CCP Wuhan lab? They’ve plenty more brewing!

    • 1saveenergy permalink
      May 26, 2021 12:37 am

      “Fancy another virus from the CCP Wuhan lab?”

      Seems COVID-19 may have been circulating in northern Italy unnoticed in July-Aug 2019

      Italian researchers did retrospective tests on blood samples from a  lung cancer screening study.
      From July 2019 to March 2020, a total of 1114 volunteers were enrolled at the Istituto Nazionale Tumori of Milan.

      All the patients were asymptomatic at the time of blood sample collection.

      The first positive sample (IgM-positive) was recorded on September 3 in the Veneto region, also antibodies found in Lomdardy sewage samples from Aug 2019.

      Full text –
      Unexpected detection of SARS-CoV-2 antibodies in the pre-pandemic period in Italy
      https://journals.sagepub.com/doi/10.1177/0300891620974755

      So, it may have started in Italy & been transported to Wuhan by Chinese workers. (time will tell)

      If so, that’ll upset a lot of people who jumped to conclusions of blame & developed lots of conspiracy theory’s, without any real evidence (just like we’ve seen in the climate fiasco), aint research a wonderful thing !
      #
      (Interestingly, although the 1918 ‘Spanish Flu’ H1N1; pandemic originated in Camp Funston Kansas USA. Some studies suggest that the H1N1 virus of North American origin likely occurred in or around 1915 ) Full text – https://english.turkcebilgi.com/Spanish_flu

      • Phoenix44 permalink
        May 26, 2021 8:46 am

        Why does that suggest it went from Italy to China rather than simply came from China earlier than we thought? There’s absolutely zero evidence that an Asian bat coronavirus would somehow find an intermediate host in Europe and then become Covid there. If Covid is a wholly natural virus it almost certainly originated in Asia where all its nearest relatives are found. You seem to be leaping to a wholly unwarranted claim that is extraordinarily unlikely.

      • El Toro permalink
        May 26, 2021 10:53 am

        Spanish ‘flu: I wonder if it started, like most ‘flu, in China. Think about the Chinese labour battalions crossing the Pacific by ship and then transiting the USA on railways on their way to the WW1 trenches…

      • It doesn't add up... permalink
        May 26, 2021 12:43 pm

        You do know that there is a substantial Chinese community in Italy with frequent travel to and from Wuhan? You also know there is evidence that the virus was in circulation in China much sooner than claimed? That there is nothing equivalent in Italy to the bat caves that sourced viruses for study in China? That the Chinese have gone to great lengths to suggest non-Chinese sources (the US has been a favourite)?

  7. Graeme No.3 permalink
    May 25, 2021 11:37 pm

    The ideal world according to the EU bureaucrats as they sit in their spacious offices in the towers in Brussels with lights and air-conditioning on. So they won’t be prepared when the electricity fails and there are no elevators. I foresee a slow, painful backdown.

  8. Nancy & John Hultquist permalink
    May 26, 2021 4:19 am

    I think I mentioned this about 3 yeas ago:
    The government will soon have to “own” the base load facilities.
    How this is reported or framed for the little people has yet to be determined.
    John

    • Phoenix44 permalink
      May 26, 2021 8:49 am

      Yes but where does that stop? How do you get gas to a gas plant? Where does the gas come from? If there’s no money in gas generation or home use there’s no gas being produced. When this all goes wrong it will stay wrong for a long time. What happens in the interim is not going to be pretty.

  9. Phoenix44 permalink
    May 26, 2021 8:53 am

    The lunatics are trying to solve stupidity with more stupidity. Yes, making all other manufacturing as expensive will create a level playing field but it just makes everything more expensive. That MUST make us all much poorer. Poorer means less tax to spend, fewer jobs. And if they think they can create new, better jobs when we are already up to our eyeballs in debt they are delusional. We are hurtling headlong to another Great Depression.

  10. May 26, 2021 9:32 am

    The carbon credits market contains structural weaknesses that make it difficult to interpret pricing in terms of real world issues.

    https://tambonthongchai.com/2019/09/30/cer/

  11. Mad Mike permalink
    May 26, 2021 10:23 am

    O/T here but from the BBC, so must be true, new report says millions cannot afford their water bills. Goodness knows what they will say when they analyse how people are coping with their energy bills now and in the future.

    https://www.bbc.co.uk/news/business-57247187

    Won’t apply to the Metropolitan Elite who are driving the Green Agenda.

    • Mack permalink
      May 26, 2021 10:59 am

      The double whammy of water poverty and energy poverty to look forward to, hey ho, green policies writ large.

      What’s particularly frustrating in relation to water is that we not only have a water poverty issue but a poverty of water issue due to extremely poor infrastructure. It’s scandalous in a periodically sodden country like ours that not one major reservoir has been constructed in the U.K. in decades, despite the hike in population and extraction over the same period. I believe Southern Water are looking to create a new 300 acre reservoir in Havant but that will be barely sufficient to match local demand. And, of course, when reservoir and river levels drop in warmer times the usual useful idiots in the media, EA, Met Office and water companies all scream ‘global warming’ which, in the climate change debate, we all understand as an anagram for ‘official arse covering’.

  12. George Jenatsch permalink
    May 26, 2021 10:29 am

    Hang on, aren’t renewables supposef to save us money? 🙂

    • Mad Mike permalink
      May 26, 2021 11:14 am

      That was the idea but that was after their massive subsidies stopped. The subsidies were only supposed to be in place to support the industry while it scaled up and could stand on it’s own 2 feet. We know what happened to that idea.

      From the article “notice how the countries with the highest electricity prices are, with a couple of exceptions, also most of the countries with the most renewable generation capacity per electricityMap.”

      In the meantime, if you can’t get the price of renewable electricity down you simply force the price of fossil fuel generation up to be higher than renewables or alternatively ban their competition altogether. Humphrey would be proud of the policy.

      What could possibly go wrong?

  13. Douglas Dragonfly permalink
    May 26, 2021 11:02 am

    Regarding Hinkley C.
    I know I’ll be corrected if wrong but here goes.

    The planned twin unit UK ERP is capable of generating 3,260 MW of secure low carbon electricity for 60 years.

    The cost is increasing, from £18 billion in 2016 to £23 billion so far. It is aimed to provide 4 – 7% net UK energy.

    At first it was said electricity would be generated before 2020. This date has moved to between 2025 and 2026.

    Also due to the cracks discovered in the graphite core of Hinkley B. Defueling will begin no later than 2022

  14. Mad Mike permalink
    May 26, 2021 11:18 am

    O/T Does anybody know why I can’t visit Tony Heller’s site, Real Climate Science. Has he been cancelled again?

    • Mack permalink
      May 26, 2021 12:00 pm

      It’s been down for 24hrs Mike and his web host is not communicating with him. Nobbled perhaps? His twitter feed is still working, for now!

      • Mad Mike permalink
        May 26, 2021 3:23 pm

        It really is genuinely disgraceful how any alternative view is subject to these cancellation tactics. As far as I have seen, on climate matters, Heller has more or less only cut and pasted bits from government organisation information feeds and the like and supplied his comments on their relevance.

        We can see what’s going on but the vast majority of the public are completely ignorant of the censorship that has been underway. I really do fear for the West’s version of freedom, democracy and future.

  15. Tim C permalink
    May 26, 2021 12:49 pm

    I am utter convinced that to get onto one of these European Commissions you must have at least one lobotomy.

  16. Gerry, England permalink
    May 26, 2021 2:28 pm

    Of course the increase in demand for gas has driven up domestic gas prices as I have not seen my recent gas bills tell me that they have a cheaper tariff. In the past it was cheap enough to take the £30 hit for early contract exit and still save overall. Now they say that I am on the cheapest tariff and will no doubt see an increase come November when the contract ends. On a recent price check for energy every result was higher than my current rates.

  17. Douglas Dragonfly permalink
    May 26, 2021 3:26 pm

    I’d like to finish the comment I started earlier.
    The Govt. here seem to be cutting it mighty fine.
    Chinese companies, amoungst others, appear to be buying England by the pound. China Nuclear Power holds 33.5% stake in Hinkley Point C. (Including Heathrow Airport and others, China owns approx. £143 billion in UK assets.)
    EDF have between 7.1 and 7.2% rate of return from Hinkley C.
    All this doesn’t leave much time or profit for the next urgently required development hopefully from Rolls Royce this time.

    And I’d like to add Italy has many mystries, not only regarding Covid 19.
    Take for example Operation Gladio.
    It just takes time for these things to come out in the wash.

  18. It doesn't add up... permalink
    May 26, 2021 9:40 pm

    It seems James Kirkup has fallen into the trap of believing propaganda about the cost of renewables and net zero.

    https://www.spectator.co.uk/article/boris-should-be-worried-about-steve-baker-not-dominic-cummings

    It is of course the general public who should be worried about net zero. And so should Boris. I should cost him his job if he doesn’t U turn soon.

    • It doesn't add up... permalink
      May 26, 2021 9:41 pm

      (If only I had that influence!) should read “It should cost him his job…”

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