EU carbon prices are set to double by 2021 and could quadruple by 2030 if the EC legislates to align the bloc’s current emissions targets with the Paris climate agreement, and this may mean that all coal plants will be unprofitable.

A new report by Carbon Tracker: Carbon Clampdown: Closing the gap to a Paris compliant EU-ETS, reveals that in order to fully align to Paris, the price of traded carbon allowances, known as EUAs, will need to rise to levels that would make even the most efficient coal and lignite power plants unprofitable. The EU currently aims to cut emissions by 40 per cent against 1990 levels by 2030, but Carbon Tracker calculates that this would need to rise to 55 per cent to align with the Paris.

EU governments have requested the European Commission to draw up proposals for a reduction strategy within a year, and this could potentially lead to a cap on the number of allowances dealt on the EU Emissions Trading System (EU ETS). Reforms to the EU ETS have already seen the price of carbon allowances triple, but further reductions could drive prices far higher.

According to the report a Paris-compliant cap for the EU-ETS would require a euro 45-55 per tonne charge for a sustained period to drive coal and lignite power plants out of the market and keep emissions in line.

This is likely to see a major switch from coal to gas in Italy, Spain, Germany and the Netherlands (the UK has largely already achieved this switch owing to its higher domestic carbon-support price).

The EU-ETS is a cap-and-trade system, in which companies receive allowances to cover their carbon emissions that they can also buy and sell. As the number of allowances is reduced over time, either demand must fall or prices must rise in order incentivise action to cut emissions and switch to cleaner fuels. Prices dropped following the global financial crisis and an over-supply built up, but now in order to align to Paris the EU is attempting to squeeze the ETS.

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