Europe’s scheme must deliver a CO2 price that actually incentivizes clean energy investment and innovationRead Now
By Peter Voser, Chief Executive Officer, Royal Dutch Shell plc
Clear and supportive policies are essential to a competitive industrial sector. For example, the EU wants a thriving cleaner energy sector to be a powerful source of economic growth. But many of the EU’s energy and climate policies were designed in more prosperous times. In today’s difficult economic conditions, those policies are producing unintended results.
Europe has seen a drastic slump in the price for carbon. Lower demand for energy during the recession has produced a surplus of carbon trading allowances. That’s slowing the pace of clean energy investment and innovation across Europe.
For example, the EU has recognized that gas-fired power can play an important role in a more sustainable energy system. That’s because gas power stations emit only half the CO2 of coal. They can also support the growth of renewables. Gas plants provide the most flexible back-up to solar and wind, when the sun doesn’t shine or the wind blow.
But gas-fired power stations are currently at risk of closure in Europe. And utility companies have delayed plans to build new ones. The problem is that the weak CO2 price is helping coal-fired power to enjoy a revival, and displace natural gas. So Europe is inadvertently pursuing a coal-and-renewables approach, spending a lot of money to subsidize specific renewables while using more coal that generates more CO2.
To resolve this, the EU should set a single, stand-alone target for greenhouse gas emissions reductions for the period to 2030.
Currently, there are separate targets for renewables, greenhouse gas emissions and energy efficiency. That’s contributing to the confusion we see today, especially the target for renewables to supply a set portion of Europe’s energy. Having one target would sharpen the focus on the main task: reducing Europe’s greenhouse gas emissions.
The most effective way to reduce emissions is to cap CO2 emissions and trade emissions allowances. The market then channels resources towards the most cost-effective reduction measures -- unlike renewable energy targets. But Europe’s scheme must deliver a CO2 price that actually incentivizes clean energy investment and innovation. That’s not happening at the moment.
In April, the European Parliament voted against proposals that would have helped produce a stronger CO2 price. Later this month, it will consider a revised set of reforms to the trading programme. A positive vote would contribute to meeting the EU’s climate objectives.
It would also help sharpen European competitiveness by accelerating investment in innovation and new technology. And that is surely a prize worth striving for.