IEEE Power & Energy Magazine - January/February 2017 - 65

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Carbon Price/Metric Ton

by the modalities and rules of the
€ 35
setup of the EU ETS. This demonstrates that the short-term behav€ 30
Carbon Price €/Mt
€
ior of the trading scheme is as it
€ 25
should be. As an example, the
€ 20
zero price at the end of 2007 is
€ 15
due to the fact that the allowances
€ 10
were not "bankable" and became
€5
worthless as of 1 January 2008.
€0
For later periods of the EU ETS,
the allowances were/are "bankable," avoiding "natural" zero
prices but leading to a surplus of
allowances after 2012 (the formal figure 3. The price of EU ETS allowances between 2006 and 2015. (Graphic based
Kyoto period) as a consequence on data from Bloomberg and Sandbag, 2015.)
of the economic crisis, with much
lower CO2 emissions than originally anticipated and thus foreseen
25
by the cap.
20
The current low CO2 prices
result from many factors, some
15
of them straightforward consequences of the design of a cap10
and-trade scheme, such as the
5
lasting economic crisis (characterized by fewer emissions)
0
that started in 2008, the inflow
of international credits, and the
bankability of allowances that
Henry Hub
NBP
Japan LNG Contract
makes the surplus persistent over
Brent
Asian LNG Spot
time. However, in addition (and
Note: NBP = National Balancing Point (United Kingdom).
this is very important from a systems perspective) an unforeseen
factor is that the EUA prices have figure 4. The development of gas prices 2009-2016 in several parts of the world.
been pushed further downward Henry Hub represents U.S. prices, while NBP represents European prices. A comby the substantial injection of parison with Brent oil prices is given because many gas contracts in Europe are still
carbon-free renewables in the linked to the price of oil. Since April 2016, prices have increased in the United States
electric power sector. Indeed, the and worldwide. LNG: liquiefied natural gas. (Source: International Energy Agency,
introduction of CO2-free electric- "Gas Medium-Term Market Report 2016," Organization for Economic Cooperation
and Development, Paris, 2016.)
ity has reduced the demand for
allowances, leading to even lower
prices (from which the other industries under the ETS had (and is still having) consequences on the merit order for
umbrella and, e.g., coal-fired units have been able to take electricity generation in the United States, where cheap gas
advantage). To put it in plain language, the high subsidies for has pushed coal-fired units out of the merit order, leading to
electricity-generating renewables have not only not impacted surplus coal on the world market and resulting, in turn, in
CO2 emissions on an EU level (because of the cap); they depressed world coal prices.
A further system effect in Europe, then, is that marginal
have affected the CO2 prices, making it cheaper for CO2polluting units to generate electricity, while still meeting cost pricing in EU electricity markets is pushing efficient
combined-cycle gas-fired units out of the merit order as a
the cap.
To further understand the effects in the European energy consequence of low world-market coal prices (due, as menmarkets, it is necessary to look as well at an important global tioned earlier, to the effects in the U.S. electricity market
interaction effect that, from an overall systems perspective, because of shale gas), the absence of a significant CO2 price
is of interest in its own right. The shale gas revolution in the signal, and the injection of zero-marginal-cost renewable
United States-with gas prices that have been, and still are, generation (see Figure 5). The green parties in the European
much lower than in other parts of the world (see Figure 4)-has Parliament wanted to see coal-fired units pushed off the
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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - January/February 2017