Coal exit must include cancellation of ETS allowances – climate economist Edenhofer

There are growing doubts as to whether Germany’s planned coal exit will lower emissions, writes Niklas Záboji in the Frankfurter Allgemeine Zeitung (FAZ). For this to occur, the German government must cancel carbon allowances in the EU Emissions Trading System (ETS), Ottmar Edenhofer, head of the Potsdam Institute for Climate Impact Research (PIK), told the newspaper. As Germany phases out coal, the demand for emissions allowances in the EU’s Emissions Trading System (EU ETS) would fall – and with it, their price. This could make it cheaper for electricity producers in other European countries to emit more CO₂ – a consequence known as the “waterbed effect”.  The FAZ writes that the German government would forego a single-digit billion-euro amount in revenues annually if it does not sell the allowances in auctions. The economy ministry signalled a cancellation of carbon emissions as part of the coal exit is not planned, and pointed to the Market Stability Reserve (MSR), as a tool for the EU to remove excess allowances from the market, writes the FAZ.

The issue has resurfaced after revelations that an economy ministry draft of the planned coal exit law did not include the cancellation of allowances. PIK had already warned of the situation earlier this year, and the coal exit commission had also specifically called for the government to cancel a corresponding number of allowances when taking coal plants offline. The environment ministry also took this stance.