EU cannot tackle climate change without gas

EU cannot tackle climate change without gas

Agata Hinc and Brian Marrs*

This article appeared on the Financial Times Blog dated 28 November 2013

Can the European Union regain the global lead on climate policy? Yes, but not without natural gas. The EU’s credibility as an international leader on climate change hinges on successfully realising its grand visions of a renewables-centric society beyond coal. This vision is simply Euro-dreaming without natural gas, a critical fuel for challenging coal today and supporting renewables tomorrow. Those who are sceptical should just look across the Atlantic, where a natural gas boom has boosted the US economy, bypassed coal-fired generation, and allowed states like California to more cost-effectively assimilate renewables.

For all its ambitious programmes, European greenhouse gas (GHG) emissions have actually increased in recent years, leading many to wonder if Europe can sustain reductions as its economy restarts. The EU should embrace COP19’s decisions as an occasion to get its climate policy back in order, which means balancing global ambitions with pragmatic domestic actions. This difficult balance requires the EU to come to terms with an indisputable fact: the EU’s energy economy is broken, and with it, so is its climate policy. Complicated and knotted policies like the EU ETS and feed-in tariffs have distracted from the underlying challenges ahead: declining domestic energy production, rising energy prices, and disillusionment in Europe’s effectiveness as a model for decarbonisation.

If nothing else, the US story reinforces the message that actions – whether within or external to a treaty structure – matter most for addressing climate change. If Europe’s energy policies fail to establish a single, well-supplied and efficient natural gas market, the EU will struggle to reduce emissions whatever the outcomes from Paris in 2015. Whether in Germany, which faces the enormous task of integrating renewables, or in Poland, which must diversify away from coal, EU-wide gas markets are critical for enabling emissions reductions.

Yet, the European Commission’s toolbox for low-carbon growth is woefully inadequate and almost ignores natural gas. This must change, and change soon, if the upcoming EU 2030 energy & climate framework is to secure meaningful GHG reductions and long-term low-carbon economic growth.

Cheap gas sold through efficient markets has emerged not only as the basis for significant US economic growth and power sector CO2 reductions in the short-term, but also as an essential ingredient for renewables-centric approaches for longer-term GHG abatement. With cheap gas conquering coal, US emissions have dropped significantly and will continue to do so. The power sector alone has decreased CO2 emissions 8 to 10 per cent from 2005 levels, leading reductions towards achieving President Barack Obama’s pledge of 17 per cent reductions by 2020. These reductions come alongside modest 1 to 2 per cent GDP growth over the past six years, with significant revitalization of core manufacturing industries.

If Europe wants to move beyond baseload nuclear or coal power, efficient gas markets are essential. Brussels must recognize that long-term GHG reductions will be difficult if not impossible without a comprehensive gas strategy. Reforming key European instruments, whether the EU ETS, emissions performance standards, or national policies like feed-in tariffs, is not enough to get European climate policy back on track.

Instead of retiring, Europe’s coal-fired power plants are running more than ever. Despite all the EU-level policies in place to constrain carbon in Europe and ambitious country specific projects like the German Energiewende, the lowest carbon, highest-performance fossil generation – gas-fired power – is in full retreat, while coal-fired power continues to ascend. In Germany, coal-fired power generation increased 5 to 8 per cent in the first three quarters of 2013. Conversely, gas-fired power plants dropped production by 18 per cent, and Deutsch Bank anticipates 25 per cent of German gas-fired generators may retire by 2015. While a host of factors like market design and low power prices have strained gas plant financials, an unavoidable reality is that European gas costs three to four times more than that in the US. European gas markets are highly fragmented, largely controlled by uncompetitive state monopolies, lack consistent pricing mechanisms, and operate with insufficient transportation infrastructure.

For many in Europe, US climate policy still evokes bad memories. The US Senate rejected the Kyoto Protocol and policy seems to either actively or inactively swim against the tide of international efforts. The US’s traditional preoccupation with energy security and deep politicization of climate science convinced many abroad that it cannot be a trusted partner. As understandable as some of those feelings may be, they are best left in the previous century. The US is reducing emissions, growing its economy, and doing so in a way that may well position it for achieving 2020 and 2050 policy targets alike.

Europe should look not only to cultivate joint interests with the US at the international level, but also closely examine its transatlantic partner’s domestic policies. Especially as they further mature, US climate change efforts may prove to be more effective and more ambitious over the long-term than European ones.

We bet that the last coal-fired power plant without CCS will be decommissioned in Europe, not the US. Will Europe prove us wrong?

*Agata Hinc is managing director at demosEUROPA – Centre for European Strategy (Warsaw, Poland) and Brian Marrs is an energy markets consultant (New Jersey, USA). Both are members of the Emerging Leaders in Environmental and Energy Policy (ELEEP) network.