22 Jan 2015   |   News

Balancing the Energy Economy 2: security of supply must not compromise CO2 targets

How can Europe balance its goal of energy security with the need to reduce CO2 emissions? Part of the answer would be fixing the carbon emissions trading system

Policymakers in Brussels are banking on Energy Union as a way of addressing one of the EU’s biggest strategic weaknesses: dependence on imports from Russia.

A radical altering of this relationship of dependence is vital, said Marie Donnelly, the European Commission’s Director for Renewables in DG Energy. “Seven member states have a single supplier of gas and oil,” she reminded delegates at ‘Balancing the Energy Economy’ on Tuesday (20 January), a conference organised by Science|Business in Brussels. “In some cases, that’s 100 per cent of their supply,” she said.

But on the other side of the scales, cutting back fuel imports carries the risk of providing more headspace for the development of the ‘cheap but dirty’ coal market in Europe.

This is something which many people in Europe are wary about, said Philip Bowen, Director of Cardiff University’s School of Engineering. “People see security of supply as an attack on the low-carbonisation race,” Bowen said.

This is a Trojan horse argument for countries with large coal reserves like Poland, and for US coal producers who have sought out new customers in Europe as they have lost business to cheaper shale oil and gas in their domestic market. 

Despite coal being regarded as one of the most polluting fossil fuels, Europe has seen an increase in building of coal-fired plants over the last few years. Germany is the country with the most electricity generated by coal, having invested heavily in coal-fired plants after turning its back on nuclear generation, followed by Poland in second and the UK, third.

Integrated sources

The discourse on energy supply in Europe is unnecessarily confrontational, said Bowen. “It’s not renewables versus traditional energy,” he said. “We need both.”   

Stephan Reimelt, President and CEO of GE Europe agreed. While acknowledging that Europe uses too much of some energy sources, he said, “We need to get rid of the mind-set that says ‘one is bad, one is good’. Only the integration of both will solve our problems,” Reimelt said.

Pricing carbon   

The European Trading System (ETS) was meant to provide a mechanism to make polluters pay for their emissions and encourage alternatives to dirty energy sources like coal. But, said Bendt Bendtsen, a Danish centre-right member of the European Parliament (MEP), the system is defective, because it makes it cheap to pollute. “We pay around €7 per tonne of carbon - money that could be spent on innovation and new technologies is not being spent,” he said.

In other words, the ETS is a blunted instrument that does not provide enough incentive to industry to change its habits.

Edgar Hertwich, a professor at the Norwegian University of Science and Technology and contributor to the Intergovernmental Panel on Climate Change (IPCC) backed up Bendtsen’s plea for a higher carbon market price.

This future price burden for carbon is not easy to predict, but it is expected to rise. However, making the cost of carbon higher will not necessarily change anything, said Reimelt. “Even at €40, €50, or €60 [per tonne of carbon], it doesn’t take a lot of coal plants out of the system,” he said.

Any price hike will be a squeeze for energy-intensive industry and nations whose economy relies on coal, said Reimelt. If you pump the carbon price too high, the consequences are unpredictable, he warned. “I don’t want to see demonstrations on the streets,” he added.  

There is clearly a balancing act to be made: it is already common to hear industry chiefs complain that the EU’s environmental regulations are making electricity prices prohibitive and strangling their business.

But in a time of tumbling global prices in crude oil, there is one financial cushion that ought to be removed, said Donnelly. “I don’t think [it’s easy] to build policy on the unpredictable gyrations of the barrel of oil, but now is an opportunity to remove expensive subsidies for fossil fuels,” she said.   

Shale, a touchy subject

Reflecting the broader sentiment in Europe, there was little appetite for going after shale gas and oil deposits.

“[Shale] is not a solution for Europe,” said Jepp Kofod, another Danish MEP, sitting in the centre-left bloc of the assembly. In the very short term it has provided a lot of benefit in the US, with the price of gas in Europe now standing at three or four times that paid in the US. But in the medium and longer term, “the US will still have to do its low carbon transition,” Kofod said.

In addition, the conditions supporting shale exploration in the US and Europe are very different, Kofod believes. “We don’t have big, empty landscapes where people can do the drilling.”

Deposits in Europe are regarded as more complex and expensive to exploit, not to mention environmentally contentious, due to their depth and the required method of extraction, hydraulic fracturing, or ‘fracking’.

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