German draft plans to close coal-fired power plants will not lead to any extra cuts in greenhouse gas emissions in Europe. Why? Because Germany has no plans (so far) to reduce the number of ETS allowances that it auctions each year going forward.
In other words, the surplus pollution rights, no longer required by operators of the affected installations, can be bought and used by any of the other 12,000 installations elsewhere in the EU. Allowances bought in one year can also be saved for use in any subsequent year.
Firms operating coal-fired power plants in Poland e.g. will very pleased at the extra surplus allowances available to them, pushing down EU-wide carbon prices even further and thus prolonging by years the time by which they will have to burn less coal and diversify across other energy options.
Other important questions remain to be answered in Berlin. Will owners of the closed installations be compensated for further income now forgone? According to press reports, some at least are seeking this. And if this happens, where will the money come from? ETS revenues perhaps? In any case, would such compensation from state resources be subject to state aid control and possible veto by the European Commission?
More interestingly, and perhaps as an alternative to direct compensation payments, if delivery of domestic plans requires German’s ‘Big Four’ companies to conclude with each other, and an effect of which would be to increase profits through higher wholesale domestic power prices, would this not also raise competition i.e. anti-trust concerns with the European Commission?
Lots of ground still to cover in these issues that I don’t think will be answered any time soon.