Wind energy companies and turbine manufacturers are among a group of leading energy firms calling for a Europe-wide carbon price floor that could drive decarbonisation and demand for cost-competitive renewable energy.
The companies, including developers Ørsted, EnBW, Eon and Engie and turbine manufacturers Siemens Gamesa Renewable Energy and Vestas said European governments, starting with a group of frontrunners, should co-operate to progressively implement a carbon price floor (CPF) in the power sector to complement an efficient EU emissions trading system (EU-ETS) price signal.
The initiative is inspired by the UK, where there is already a carbon price floor and research by the Dutch Government, which wants to introduce a similar system.
Drax Group chief executive Will Gardiner, whose company is among signatories to the declaration, said “Robust carbon pricing is one of the most effective tools to enabling a zero-carbon, lower-cost energy future. Since the introduction of the UK’s carbon floor price in 2013, coal use has reduced by almost 75% and renewables capacity has tripled. Going forward, it is vital that governments across Europe and the EU target a strengthened carbon price in order to meet our Paris Agreement climate change targets.”
Research by FTI Consulting suggests that emissions in CPF countries would be significantly reduced by 2030 and reduced across the EU as whole if the approach promoted in the declaration were adopted. “Renewables investment would be supported in a world where projects are increasingly exposed to merchant price risk” – as is offshore wind – said FTI Consulting. It would also drive greater coal-to-gas switching and provide a clearer investment signal to avoid lock-in of fossil plant.
A carbon price is a cost applied to carbon pollution to encourage polluters to reduce the amount of greenhouse gases they emit. Most economists agree that introducing a carbon price is the single most effective way for countries to reduce emissions and encourage the transition from carbon-based generation to renewables.
The companies making the declaration said several renewable energy technologies are already cost-efficient on market terms when carbon costs are internalised in wholesale electricity prices. They believe that a multi-member CPF can secure a credible short and long-term carbon pricing signal to decarbonise the European power sector in a cost-efficient manner. It will do so by eliminating a significant layer of regulatory risk which in turn will reduce the cost of renewables.
“A multi-member CPF would reduce revenue uncertainty and help business models and innovation related to energy transition, such as renewables, energy efficiency and storage,” said the companies. “With robust reform of the ETS, the ETS price would rise above the floor level, and the CPF would work as a back-stop against collapsing prices, while still reducing risks. A rising CPF delivers insurance to guarantee that targets will be met and paves the way to stronger ambition in line with the Paris Agreement.
“European governments should co-operate to initiate a trajectory for a rising carbon price on fossil fuels,” they said. “A rising carbon price should be part of a tax or similar measure on transport and heating fuel paid by all households and businesses. Significant revenues collected by the governments could be used to mitigate the impacts on most vulnerable consumers and foster public policies supporting investment in clean transport and a decarbonised heating/cooling sector.”