Germany deletes EU CO2 allowances freed up by coal exit

CO2 allowances from the EU Emissions Trading System (EU ETS) no longer used by coal power plants which were shut down as part of Germany's coal exit will be deleted to make sure they are not sold and cause additional emissions elsewhere in the EU, the government said, reported Table.Media. The economy ministry told the news service that the allowances for 2021 and 2022 were taken off the market and will eventually be deleted. This also means Germany waives the revenues it would otherwise receive from the sales of the allowances to the plant operators. It is unclear how high the forgone revenues are, reported Table.Media. In 2022, ETS revenues for Germany totalled 6.8 billion euros.

NGOs and climate experts had expressed fears that the country’s coal phase-out, which the government hopes to pull forward to 2030 from the agreed 2038 phase-out date, would do nothing for the climate if the freed-up emission allowances were used elsewhere – a phenomenon often referred to as the “waterbed effect”.

The freed-up allowances are currently parked in the "Market Stability Reserve" (MSR) of the EU ETS – where they cannot be auctioned or traded. These allowances can only be returned to auction if the number of allowances in the market falls below a certain level. Germany has now requested for the allowances to be deleted to avoid this, reported Table.Media. The EU and Germany had long disagreed about the number of allowances which need to be deleted for the plants which are shut down. This had delayed the country's plan to cancel them, said the article. However, the government now agreed with EU calculations, which use an average value of CO2 emissions of a plant over the past five years.