EU Seen Curbing Coal Use by Quadrupling Carbon Price

Europe could coax utilities to shift from burning coal to cleaner natural gas by quadrupling the price that financial markets place on carbon dioxide emissions, the head of Spain’s biggest power generator said.

Ignacio Galan, chairman and chief executive officer of Iberdrola (IBE) SA, said European Union leaders should take steps to boost prices in the EU Emissions Trading System in addition to setting a target to reduce pollution by 40 percent by 2030.

“A carbon price of 20 to 30 euros is the right level for switching from coal to gas,” Galan said in an interview at Bloomberg’s office in London. Carbon has fallen by a third to less than 6 euros ($8.17) a metric ton since 2011 as slower economic growth reduced industrial production and the need to offset pollution.

The comments were meant to guide EU leaders as they negotiate targets to restrain emissions, part of an effort by more than 190 countries led by the United Nations to curb the gases blamed for global warming. Coal’s share of world energy demand rose to the highest level since 1970, making it the fastest-growing fossil fuel, the oil producer BP Plc (BP/) estimates.

Galan along with other utility executives support a European Commission proposal to cut carbon emissions 40 percent by 2030, which is double the target for 2020. That will require an average annual investment of 38 billion euros ($52 billion), according to an EU policy paper on Jan. 22. The current pace of reductions would lead to a 32 percent cut by 2030.

Energy Reforms

The Iberdrola executive also wants to see reforms to the carbon trading system that would boost prices, sending polluters a signal that they’ll have to pay more for fossil fuel emissions. Iberdrola is a major developer of wind farms and natural gas-fired power stations, which emit less carbon than ones that use coal.

“We need a new energy policy framework,” Galan, 63, said on June 25. “We need a real emissions trading system that works.”

CEOs from 10 utilities including Iberdrola, Italy’s Eni SpA (ENI), France’s GDF Suez (GSZ) and Germany’s EON SE, sent a letter to EU leaders before their meeting in Brussels today calling for changes to be made to policy. They said the EU should adopt a carbon target no later than October or risk uncertainty over the direction of policy that would unsettle power investments.

“Current policies would threaten security of supply, increase carbon-dioxide emissions in some member states, and dis-incentivize investments in the sector while contributing to high energy bills for citizens and industrial customers, challenging European competitiveness,” the executives wrote in the letter from the group known as Magritte.

Shale Gas

A shale boom in the U.S. led to a collapse in gas prices that’s helped consumers and stimulated industries, forcing cheaper, more-polluting coal to be shipped to Europe for use in power stations. The U.S. doesn’t have environmental obligations placed on companies, unlike in Europe, where staying competitive is a concern.

Iberdrola lost 86 million pounds ($146 million) in its ScottishPower generation business in the U.K. last year as politicians were haranguing the industry for driving up the cost of living. The six biggest energy companies have been referred to the competition authority, which may force a break-up of power generation and distribution businesses. The ruling Conservative government and opposition Labour party are concerned that gas and power prices have risen faster than inflation.

“In Europe, most of the countries are using the bill as a basket where you can put anything like taxes, obligations, subsidies,” Galan said. “Why is it not funded via general taxation, instead of the energy bill, like in America.”

To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Reed Landberg, Ana Monteiro

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