Planned exemptions under the second phase of the EU emissions trading scheme mean a new breed of cleaner coal-fired power stations are on their way in Germany, according to Christian Egenhofer, a senior researcher at the Centre for European Policy Studies (CEPS) in Brussels. But it could also lock the country into high carbon fuels for many years to come, he warns.
Under Germany's draft National Allocation Plan, which was submitted to the Commission on 28 June, every new power station built between 2008 and 2012 would be allowed to opt out from carbon emission restrictions for a period of 14 years (EurActiv 30 June 2006).
Egenhofer says the opt-out would allow investments into cleaner yet more expensive coal-fired power stations to become economically viable, thus helping the country meet rising demand for electricity.
"There is a rational reason for the Germans doing this, it is the security of supply," says Egenhofer. "The German fuel mix is perfectly balanced at the moment, one third gas, one third coal, one third nuclear. So it seems to be a deliberate choice".
The EU carbon trading scheme tends to favour electricity produced from natural gas because it emits lower levels of carbon dioxide. Coal, on the other hand, has higher carbon intensity, which means coal-fired power stations need to buy pollution credits on the market to be able to operate. This in turn pushes their costs up, eventually forcing electricity produced from coal out of the market in the long run.
"If you let the market unfettered, then you go towards gas," Egenhofer says. "And all of it will have to come from Russia so you might run in over-dependence. Again, [Germany's] fuel mix may not end up as balanced as it is at the moment".
So is Germany taking the right option in asking to let new coal-fired power stations out of the ETS?
"It is a double-edged sword," says Egenhofer. "In the sort term, it helps to move to a cleaner technology within the fuel in question. If you give this 14 year opt-out, you may get this investment because it is a good economic deal. But [the Germans] may at the same time put themselves off-track if you look beyond the Kyoto Protocol," he warns.
"From an economic incentive perspective it is a non-sense," Egenhofer says. "If you really want to bring down emissions you want to move to low-carbon fuels. If you get all new installations based on coal, they may be very efficient but they are still very high in carbon intensity so you lock yourself on a certain track. That is a risk."
