David Foxwell reflects on how a carbon price floor might help drive decarbonisation in Europe and accelerate the roll-out of renewables
There has been a lot of talk recently about the role a minimum carbon price might play in decarbonising the energy sector and accelerating the transition to, and investment in, renewable energy such as offshore wind.
To complement the EU Emissions Trading System, a group of companies – including some well-known names in the offshore wind industry – have proposed introducing a European or regional carbon price floor (CPF) in the power sector and minimum carbon pricing for transport and buildings. That’s because predictable and consistent carbon price signals are widely considered the most cost-effective way to stimulate climate friendly decision-making by businesses and consumers.
As I mentioned briefly here, a report from FTI Consulting demonstrates that a more robust path towards decarbonisation of the power sector is possible if countries join forces. The report found that, with a CPF, CO2 emissions from the power sector could be reduced by an additional 29% by 2030 in the carbon price floor area and total EU power sector emissions could be reduced by 17%.
Another benefit is that a CPF reduces the costs of investing by reducing volatility in power prices. It would also enable more renewable energy projects to be realised with less financial support and accelerate the phase out of heavily polluting sources of energy.
Among those backing the idea is EnBW chief executive Frank Mastiaux who made the point that a CPF will accelerate decarbonisation by reducing coal-based production more rapidly and thus induce a much faster switch from coal to gas. As mentioned above, it would also accelerate renewable energy expansion by making it easier to finance new projects.
Ørsted Offshore chief executive Martin Neubert highlighted the point that Europe still has massive potential for generating energy from offshore wind and said a CPF would reduce volatility and uncertainty for investors, which would enhance the viability of zero-subsidy offshore wind projects.
The point Mr Neubert made was reinforced at a recent conference I attended, where speakers focused on zero-subsidy offshore wind and how to ensure that it is viable.
Are zero-subsidy bids sustainable, someone asked, and were the industry leaders present such as Equinor and Vattenfall willing to continue to play in a market in which zero-subsidy might one day become the norm?
Absolutely they are, said Equinor head of new energy project Pål Coldevin and Vattenfall director offshore wind portfolios and transactions Danielle Lane. Merchant risk projects are undoubtedly a big step, said Ms Lane, but energy companies have been undertaking completely unsubsidised projects in other sectors for years.
Power purchase agreements look set to play a growing role in a zero-subsidy environment, said GE Capital managing director Paul Hennemeyer; greater access to the retail market will help, said Ms Lane, noting that as zero-subsidy becomes a more common feature of the market so there is a growing need to bring on the demand side and for sector coupling.
But Mr Coldevin and Innogy head of bid management Bart Oberink were surely right when they told delegates that a CPF of the type that the Dutch Government is looking at will be a primary mechanism helping the business case for zero-subsidy offshore wind, and that to maximise its effectiveness a CPF ought to be European-wide.