A glut of emissions allowances in Europe has made coal the continent’s most profitable electric power fuel.
Despite highly touted climate policies, European utilities are rushing to capitalize on the cheapest and dirtiest source of electric power in the continent: coal. A combination of low carbon permit prices under the EU Emissions Trading Scheme (ETS) and increased coal imports from the United States has made coal the most profitable fuel for power generation. Meanwhile, the on-going American shale gas boom — powered in part by decades of federal investments in shale drilling technologies — is accelerating the closure of US coal-fired power plants.
According to Bloomberg, demand for coal grew 3.3 percent last year, the fastest pace since 2006. Coal’s resurgence is as big a surprise to European environmentalists as the shale revolution is to their US counterparts — natural gas remains relatively expensive in Europe, and the emissions penalty levied by the ETS has dropped so low in recent months that coal has become much more competitive than gas for European utilities.
Gas is so expensive in Europe that utilities are actually shutting down cleaner gas-fired power plants in favour of more profitable coal. Deutsche Bank AG predicts that as much as 6,400 megawatts (MW) of Germany’s natural gas power will be closed by 2015 — that’s a quarter of the country’s natural gas-fired capacity.