EU Power, Gas Market Coordination Can Help Cut CO2, Exxon Says

Closer integration of the European Union’s natural gas and power markets can encourage a shift to less-polluting fuels in the bloc’s member states and help reduce carbon-dioxide emissions, according to Exxon Mobil Corp. (XOM)

The 27-nation EU needs to make sure that the importance of natural gas “is not lost” in the debate about the bloc’s climate and energy policies, Linda DuCharme, director of Europe, Russia and the Caspian at Exxon Mobil International Ltd. said in an interview in Brussels on Oct. 5.

“When Europe is struggling with the challenge of reducing CO2 emissions and supporting growth in renewables, gas-fired power generation is an important consideration and really the only one that can support renewables and continue to keep CO2 emissions down,” DuCharme said.

Her comments came as the European Commission, the EU’s regulatory arm, is preparing to publish in November a policy paper urging member states to speed up the enactment of legislation aimed at breaking down national barriers in natural gas and power markets by 2014. The creation of a competitive pan-European gas and power market may add 0.8 percent to EU gross domestic product by 2020, creating more jobs and helping keep inflation down, according to the commission.

The EU, which wants to lead the global fight against climate change, aims to lower greenhouse gas emissions by 20 percent in 2020 compared with 1990 levels and decarbonize its power sector by 2050. Poland, which relies on coal for around 90 percent of its electricity needs, has said the EU goal would require a major change to its fuel mix and is possible only with widespread deployment of carbon capture and storage technology.

Climate Policy

The east European country, which buys about 70 percent of its gas from Russia’s OAO Gazprom (GAZP), blocked a political declaration by EU environment ministers on future climate policy this year and in 2011. Poland pays Gazprom “more than $500” per 1,000 cubic meters, compared with a $360 spot price and the $400 to $420 that German companies pay in long-term contracts, Treasury Minister Mikolaj Budzanowski said last month.

“Part of the solution comes with improving the interconnectiveness of the European gas market,” DuCharme said. “The more the European markets are interconnected the more you will see the free flow of gas across borders and Poland will have more options from where to get its natural gas than just from further east.”

DuCharme said Poland might not necessarily have to import natural gas, but could instead buy electricity from outside the country that is generated from gas.

‘Potential Distortion’

DuCharme also said unpredictable regulations make companies less willing to invest in projects that “have lifespan over decades.” The EU plan to intervene in the carbon market is a “potential distortion” and undermines the system’s credibility, she said.

The commission proposed in July to delay auctions of some carbon permits in its emissions trading system as of 2013 to alleviate oversupply in the market and help prices recover after they slumped to a record low in April. The number of permits to be delayed hasn’t been determined and the plan requires support from national governments and the European Parliament to be enacted.

“If the commission is seen as being able to go in every couple of years and change the rules of that game, then anybody who’s trying to make investments in power generation or anything that has a cost of carbon in their economic analysis is not going to know what to put in that analysis,” DuCharme said. “Any bank that is trying to fund these investments is going to see that as a risky situation.”

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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