Blog Post

When will the EU switch away from coal?

In the US, electricity producers are switching from coal to less polluting natural gas thanks to lower gas prices. However in the EU, the carbon price has been too low to make natural gas competitive with coal.

By: Date: December 21, 2015 Energy & Climate Tags & Topics

Despite a weak climate policy the US reduced its energy related carbon emissions by the same amount as the EU (9 percent) between 2000 and 2014.

The main reason for this remarkable drop in emissions was that US electricity producers switched from coal to less polluting natural gas in electricity production, after the shale-gas revolution cut gas prices.

The EU carbon price, the cost to companies of producing one tonne of carbon dioxide (€/t), was too low to make natural gas competitive with coal, and as a result EU electricity producers have failed to make the switch.

We present the carbon prices necessary for US and EU power production to switch from coal to gas in the graph below. This is based on the corresponding fuel prices (in the EU, CIF ARA coal and TTF gas; in the US, Appalachian coal and Henry Hub gas).

Eventually, the European emission trading system is likely to achieve such carbon prices, as every year less allowances are allocated. To make the expected future scarcity of allowances visible already in today’s prices – and thereby contribute to an earlier switch from coal to gas – we argue that the credibility of the European emission trading system should and can be strengthened (see our proposal here).

Although natural gas prices in the EU have dropped by 45% in the last two years, significantly reducing the carbon price required for switching, coal prices have also fallen by 30%. This means that for natural gas to drive out coal in EU electricity production, either gas price would have to drop by another 30% (to about 3,5 USD/MMBtu) or the carbon price would have to increase from less than 10 €/tCO2 to over 30 €/t CO2.

Note and Sources:

  • Carbon ETS price: ICE-ECX EUA, from Datastream, EURO per MT
  • Coal price US: Appalachian Coal, from Datastream, USD per MT
  • Natural Gas price US: Henry Hub, from Datastream, USD per MMBTU
  • Coal price EU: ICE API2 ARA Coal, from Datastream, USD per MT
  • Natural Gas price EU: TTF, from Datastream, EURO per MW
  • Heat rate for coal US, 2013: Peabody Energy, 10,555 btu/kWh
  • Heat rate for coal EU, 2013 : US Energy Information Administration, 10,459 btu/kWh
  • Heat rate for natural gas, 2013 : US Energy Information Administration, 7,948 btu/kWh
  • Amount of fuel used per kWh (in lb) is 1.03 lb according to EIA.
  • The calorific content is equal to:
    • 6,000 kcal/kg for ARA, equal 10,804.57 Btu/lb
    • 12,000 Btu/lb for Appalachian.

Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article Download PDF More on this topic

External Publication

cover

Seven years after the crisis: intersecting perspectives

This joint publication brings together the papers produced as part of the first collaboration between Bruegel and the OCP Policy Center. Within the theme of “Seven Years after the Crisis: Intersecting Perspectives” our two organisations launched a “Platform for Advanced & Emerging Economies Policy Dialogue” in Rabat on 1 April 2016.

By: Rim Berahab, Nuria Boot, Uri Dadush, Karim El Aynaoui, Karim El Mokri, Simone Tagliapietra, Karen E. Wilson, Guntram B. Wolff and Georg Zachmann Topic: Global Economics & Governance Date: August 19, 2016
Read article More on this topic More by this author

Opinion

Georg Zachmann

Nord Stream 2: a bad deal for Germany and Eastern Europe

Georg Zachmann argues that the Nord Stream 2 project is a danger to the European consensus on relations with Russia. What is more, it could undermine efforts to diversify Europe's gas supply and might risk higher prices for Eastern Europe.

By: Georg Zachmann Topic: Energy & Climate Date: July 18, 2016
Read article Download PDF

Parliamentary Testimony

GasEuropean Parliament

Rethinking the security of the European Union's gas supply

Presentation at the EPP hearing on the “Winter Energy Package” on 29 June 2016.

By: Simone Tagliapietra and Georg Zachmann Topic: Energy & Climate, European Parliament, Parliamentary Testimonies Date: June 29, 2016
Read about event More on this topic

Past Event

Past Event

The European energy transition: a vision between decarbonisation and digitalisation

This closed-door brainstorming workshop will discuss how the energy system of the future will be shaped by the interaction between decarbonisation and digitalisation.

Topic: Energy & Climate Location: Brussels Date: June 16, 2016
Read about event

Past Event

Past Event

New perspectives for economic cooperation with Iran

The lifting of international sanctions will have a big impact on the economic relationship between Iran and the rest of the world.

Speakers: Benjamin Godel, Zahra Jazayeri, Mohsen Pakparvar, Simone Tagliapietra, HE Peiman Seadat, Farhad Sharif and Guntram B. Wolff Topic: Energy & Climate, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 2, 2016
Read about event More on this topic

Past Event

Past Event

Euro-Mediterranean energy talks

The energy landscape of the Southern and Eastern Mediterranean is inefficient and unsustainable. Yet there is much potential for cooperation. How could the EU work with this region to improve energy systems?

Speakers: Ali Aissaoui, Moncef Ben Abdallah, Jorge Borrego, Claudia Brandus, Uri Dadush, Karim El Aynaoui, Angelo Ferrante, Francesco Giunti, Ali Hached, Manfred Hafner, Ezzedine Khalfallah, Stefano Manservisi, Mehmet Öğütçü, Francis Perrin, Sabina Ratti, Edoardo Reviglio, André Sapir, Simone Tagliapietra, Hans van Steen, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 31, 2016
Read article More on this topic More by this author

Opinion

Simone Tagliapietra

EU must step up energy cooperation with southern Mediterranean countries

Furthering energy cooperation between the EU and countries in the Southern Mediterranean is a challenge, but also a great opportunity. Supporting sustainable energy projects in partner countries could make them more economically stable and help safeguard the EU’s security of gas supply.

By: Simone Tagliapietra Topic: Energy & Climate Date: May 4, 2016
Read article Download PDF More on this topic

Policy Brief

ENERGY ACROSS  THE MEDITERRANEAN:  A CALL FOR REALISM

Energy across the Mediterranean: a call for realism

After almost two decades of unproductive regional cooperation attempts, the EU should reshape its energy cooperation efforts in the Mediterranean through new bilateral approaches

By: Simone Tagliapietra and Georg Zachmann Topic: Energy & Climate Date: April 28, 2016
Read about event More on this topic

Past Event

Past Event

Seven Years after the Crisis: Intersecting Perspectives

The global economy is still marked by the effects of the financial crisis. Advanced and emerging economies display divergent narratives in the post-crisis period, but what can they learn from each other?

Speakers: Abdelaziz Ait Ali, Karim El Aynaoui, Hakim Ben Hammouda, Samir Benmakhlouf, Dominique Bocquet, Marek Dabrowski, Uri Dadush, Laura El-Katiri, Karim El Mokri, Iñigo Fernandez de Mesa, Manfred Hafner, Malika Laasri Lahou, Ted Moran, Mehmet Öğütçü, Nicolò Russo Perez, Marco Raganella, Ahmed Rahhou, Stefano Sacchi, Edward Scicluna, Simone Tagliapietra, Heliodoro Temprano Arroyo, Guntram B. Wolff, Georg Zachmann, Daniela Zampini, Marie Francoise Marie-Nelly and Chiedu Osakwe Topic: Global Economics & Governance Location: Rabat, Morocco Date: March 31, 2016
Read article More on this topic

Blog Post

IMG_20150922_160434
Georg Zachmann

Is the oil price-GDP link broken?

Oil prices fell to a 12-year low at the beginning of 2016. We find that the drop in the past two years was primarily driven by expectations. In fact, changes in oil prices since 2008 are increasingly explained by expectations. In the past, expectation-driven oil prices drops were good news for the EU economy. However, the declining importance of actual changes in demand and supply for oil prices raises doubts about whether we can still expect a positive impact on EU GDP.

By: Domenico Favoino and Georg Zachmann Topic: Energy & Climate Date: March 31, 2016
Read article More on this topic More by this author

Blog Post

Simone Tagliapietra

Iran faces a bumpy road back to global energy markets

Iran’s energy sector is vital for the country’s economy. Now that sanctions have been lifted, the government must reform the oil sector to encourage investment from international oil companies.

By: Simone Tagliapietra Topic: Energy & Climate Date: February 9, 2016
Read article More on this topic More by this author

Blog Post

Canete Image

Speech by Miguel Arias Cañete on EU’s climate and energy policies after COP21

Speech held at Bruegel event on "How will the Paris agreement impact EU climate and energy policies?", on 8 February 2016.

By: Miguel Arias Cañete Topic: Energy & Climate Date: February 8, 2016
Load more posts