Emissions markets are the cheapest way for Europe’s utilities to cut greenhouse-gas output until 2030, when investment in technologies such as carbon-capture is expected to inflate costs, energy adviser Poeyry Oyj said.
Electricity users may pay 75.40 euros ($101) a megawatt hour on average through 2030 under a scenario where emission-reduction costs are set by the market, the Vantaa, Finland-based firm said in a report on its website. That’s 2.1 percent less than a system where governments match the expense of renewable technologies, according to Poeyry, whose customers include the European Commission and the U.K.
The most cost-effective scenario “allows the carbon price to do the heavy lifting from 2020 to 2030,” Simon Bradbury, principal consultant at Poeyry, said yesterday by phone from Oxford, England. After then, costs may have to jump to encourage development of currently immature technologies such as carbon capture and storage and offshore windfarms.
European Union lawmakers are considering whether to extend targets on renewables, carbon dioxide and energy efficiency to 2030 from 2020. The European Commission wants to consult on new climate and energy policies by the middle of January, EU Climate Commissioner Connie Hedegaard said Oct. 31.
Under the EU’s cap-and-trade system, allowances are auctioned or allocated for free to power plants and factories that must surrender the permits to cover discharges or pay fines. Bradbury’s analysis assumes nations use the carbon permit revenue to cut power-consumer costs.
In the markets scenario, the price paid by consumers surges to 102 euros a megawatt-hour in 2035, compared with 89 euros under a national support payment model, according to Poeyry. By 2050, costs under the market path fall back to 91 euros a megawatt-hour, below the 93-euro level for the support scenario.
Lawmakers should consider committing to a “clear carbon pricing framework” through 2030, which may include new institutions including an independent carbon bank and systems to adjust the supply of allowances, Bradbury said.
Benchmark EU carbon permits fell 0.6 percent today to 4.62 euros a ton on ICE Futures Europe in London at 4:16 p.m. The contracts have plunged 73 percent in the past five years due to a surplus of allowances exacerbated by the economic slowdown.
Where possible, there should be “international agreements and consumer acceptance of the cost implications of pursuing decarbonization,” Bradbury said.