A group of sixteen European energy companies including France’s EDF, Germany’s E.ON, and Denmark’s Ørsted, have proposed introducing a carbon price floor at European or regional level, as a way to the speed up the transition to a low-carbon economy.
“A carbon price floor in the power sector and minimum carbon pricing for transport and buildings, can deliver significant additional CO2 emission reductions which would put Europe on track to meet the objectives of the Paris agreement,” the coalition said in a statement.
The joint proposal was made public on Wednesday (28 November), just hours before the European Commission presents its long-term strategy for the transition to a “climate neutral” economy by 2050.
EU member states are divided on the issue of introducing a minimum price of carbon, with some like Poland resisting the idea because of the costs involved.
But the energy companies which signed the appeal say a minimum carbon price could still be implemented in the power sector by “a group of frontrunners”, inspired by the UK and Dutch examples.
Companies taking part in the coalition made clear that any carbon price floor in Europe must also come as a complement to the EU’s existing Emissions Trading Scheme for greenhouse gas emissions, in place since 2005.
Their main plea is that stronger market signals are needed in order to drive the transition to a low-carbon economy.
“Predictable and consistent carbon price signals are widely considered the most cost-effective way to stimulate climate friendly decision-making by businesses and consumers,” the coalition argues.
In that sense, they believe greater effort must be made to tackle emissions from transport and buildings, which are currently not covered by the ETS although they consume vast amounts of energy.
Buildings currently represent 40% of the EU’s total energy consumption while emissions from transport have kept growing over the past years, undermining efforts to decouple greenhouse gas emissions from economic growth.
“Emissions are increasingly coming from sectors not covered by the ETS,” said Johannes Teyssen, the CEO of E.ON. “It is vital that Europe moves towards a carbon price in all energy consuming sectors,” he added, saying “this will create a real incentive to burn less carbon across the economy, and level the playing field between electricity and other fuels.”
A minimum carbon price would also encourage investments in offshore wind, where Europe still has “huge untapped potential,” said Martin Neubert, CEO of Ørsted Offshore. “A carbon price floor would reduce volatility and uncertainty for any investor, which makes offshore wind projects without revenue stabilising mechanisms more viable and thus increases the speed of the urgently needed transformation to low-carbon energy systems,” he said.
The joint call by the energy companies was accompanied by a report by FTI Consulting, which demonstrates that a more robust path towards decarbonisation of the power sector is possible if more countries join forces.
The report includes the following findings:
- With a carbon price floor, CO2 emissions from the power sector could be reduced by additional 29% by 2030 in the carbon price floor area, while total EU power sector emissions are reduced by 17%.
- A carbon price floor reduces the costs of investments: reduced volatility in power prices leads to reduced financing costs.
- A carbon price floor boosts the energy transition: it allows more renewable energy projects to be realised with less financial support and drives an acceleration of coal phase out.
- With a carbon price floor, average electricity prices will not increase in the long run, which safeguards the competitiveness of the electro-intensive industry.
- In the short term, possible impacts on power-intensive industries can be mitigated using government revenues raised with the carbon price floor.
“As an industry leader, we encourage European member states to embrace this initiative,” said Markus Tacke, CEO of Siemens Gamesa.
“We believe that a carbon price floor will make an important contribution toward the cost-effective decarbonisation of the European economy, and will help us to achieve the targets of the Paris Agreement. The transition to a cleaner world is a mission we support and embrace,” he said.
The full list of signatories to the joint call includes: Drax, EDF, EHPA, EnBW, Eneco, Enercon, Engie, E.On, Nordex, Acciona, Ørsted, Simens Gamesa, SSE, Stiebel Eltron, Verbund, and Vestas.