The battle for European carbon begins

The week in clean energy saw the EU set itself the key task of fast-tracking a reserve mechanism for carbon permits while Japan's new wind tariff disappointed analysts.

The European Union plan to adjust automatically the supply of carbon permits will start to be discussed by the region’s parliament in September, according to the assembly’s environment committee chair, Matthias Groote. 

The 28-nation bloc’s parliament will begin work on the draft law, which aims to introduce supply curbs or injections to avoid imbalances, only after elections in May and a summer recess in August, Groote said on March 5 in an interview in Brussels. 

The measure needs qualified-majority support from member states and majority backing from the parliament to enter into force. 

Germany has already said that an overhaul of the EU carbon market should begin at the latest in 2016, five years earlier than proposed by the bloc’s regulatory arm. Implementing the reserve mechanism from 2016 onwards implies a highly ambitious schedule. With formal talks unlikely to happen before year-end, whether the likely opposition by industrial companies can be overcome in less than a year is questionable, especially given that it took longer to agree on a comparatively simple measure such as backloading. 

Separately, EU member states also backed a draft law to extend the exclusion of foreign flights from EU emission curbs through 2016, according to a bloc official. Despite the initial approval, there is still a small risk that the European Parliament could block the compromise and reignite the threat of a trade dispute on the issue. If it does block the compromise, the deal breaks down and airlines would legally be required to comply for emissions from all flights with at least one leg in Europe as early as April. The parliament’s environment committee is set to vote on March 19. 

Meanwhile, RWE had its first full-year loss since the foundation of the Federal Republic of Germany in 1949 as slumping power prices led to billions of euros in writedowns.

The country’s largest power generator posted a net loss of €2.76 billion ($US3.8 billion) on sales of €54.1 billion after a profit of €1.31 billion, it said in a statement. It wrote down €4.8 billion on assets, mainly power stations.

The historic loss follows Chancellor Angela Merkel’s transformation of the domestic energy market toward renewables and away from nuclear. A surge in wind and solar energy, now 23 per cent of generation, has curbed wholesale prices, already weakened by Europe’s economic crisis. 

Europe’s largest emitter of carbon dioxide said that its greenhouse-gas output fell by 16Mt (9 per cent) in 2013 to 163.8Mt, citing decreasing hard coal power generation.

In the world of policy, Japan plans to reduce incentives for solar power and introduce a higher tariff for offshore wind than for onshore turbines, to encourage installation.

The offshore wind tariff would be set at 36 yen (35 US cents)/kWh for 20 years, according to a report by a panel advising the trade ministry. Onshore wind would get a separate rate, of 22 yen, unchanged from fiscal 2013. The solar tariff would decline 11 per cent to 32 yen.

The suggested offshore wind tariff is surprisingly low, according to Bloomberg New Energy Finance. The rate is lower than the estimated levelised cost of electricity of 45 yen/kWh for offshore wind in Japan, and hence unlikely to speed up project development.

The recommended tariffs will affect applications from April 1, subject to approval by trade minister Toshimitsu Motegi.

Finally, a £300 million ($US500 million) biomass power project in the UK was stopped because government support for the technology wavered. Renewable Energy Systems said it would cease planning for the project that would have been built at Port of Blyth in Northumberland, creating 300 jobs in construction and a further 50 full-time slots, according to a statement released by the company.

The UK government surprised the industry in 2012 by announcing it would focus its support for biomass on conversion projects at the expense of new dedicated biomass plants. It also trimmed subsidies for co-firing to encourage full conversion. Since then, about 1.5GW of planned new dedicated capacity has been scrapped. However, dedicated biomass plants with combined heat and power are exempt from the 400 MW cap – there is around 800 MW of those in the pipeline, and four out of five of the biomass-to-power projects financed last year were CHP plants.

EU carbon

The European carbon market ended a volatile trading week nearly 2.4 per cent down – marking its second weekly loss in a row.

EUAs for delivery in December ended last Friday’s session at €6.98 per tonne on ICE Futures Europe exchange in London, compared with €7.15/t at the close of the previous week. 

EUAs for December 2014 fell as much as 4.8 per cent on Tuesday to a low of €6.38/t before recovering in the afternoon. Prices stayed mostly in a range of €6.80/t to €7.00/t on Wednesday and Thursday as trading activity weakened.

Front-year permits bounced back to a high of €7.13/t on Friday afternoon only to fall again before close. 

UN Certified Emission Reduction credits for December 2014 lost €0.04/t last week to finish at €0.24/t. 

German power for delivery in 2015 ended the week 0.4 per cent down at €36.20/MWh.

Originally published by Bloomberg New Energy Finance. Reproduced with permission.

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