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Calls for Europe to make coal less competitive

Europe must do more to cut coal out of the continent's energy mix to reduce its carbon emissions, gas industry leaders said

Helen Robertson

Rune Bjørnson, Statoil's senior vice president of Natural Gas, said the European Union (EU) must overhaul the bloc's emissions trading scheme (ETS) to raise carbon prices and make coal less price-competitive. This displacement of coal should be Europe's priority rather than focusing on increasing production of renewable energy, he said.

"The EU should stick to trying to fix the ETS system and leave the rest to the markets. I'm more and more in doubt about the EU's ability to deal with the (emissions reduction) issue," Bjørnson said. "The elephant in the room is coal. Without displacing it Europe is going to struggle to reach its (carbon emissions reduction) targets."

In January, the EU said it wanted to boost Europe's use of renewable energy to comprise 40% of the continent's energy mix by 2030.

The European Commission (EC) unveiled plans to cut Europe's greenhouse gas emissions (GHG) by 40%, from 1990 levels, by 2030. The EC also wants to boost the share of renewables in the continent's energy mix, to comprise at least 27% of total consumption by 2030.

The policy is designed to build on the previous 20:20:20 EU climate policy. This included a 20% reduction in GHG emissions below the 1990 level, a 20% share for renewable energy sources in the energy mix and a 20% saving in primary energy consumption, all by 2020.

The new 2030 proposal aims to take further steps towards the EU's aim to cut greenhouse gas emissions by 80-95%, from 1990 levels, by 2050.

The EC says marking out this EU-level target for renewable energy is necessary to drive investment in the renewable energy sector.

However, the European gas industry said the EU's commitment to renewables is derailing efforts to cut GHGs because of the ETS' failure to cut the continent's coal use.

Europe is now the second-fastest growing market for coal in the world. In 2012, Europe consumed 517 million tonnes of oil equivalent (toe) of coal, according to Cedigaz. This is up from 471m toe in 2009.

The ETS has been regarded as a failure as Europe's carbon emissions have risen, since its introduction in 2005, and low carbon prices provide little incentive to cut coal use. Low carbon prices and the economic crisis have helped to increase Europe's coal consumption. Coal made a comeback into Europe's energy mix after 2008 displacing some of natural gas' share.

Gordon Pickering, director at Navigant consultancy, tells Petroleum Economist US liquefied natural gas (LNG) exports could help to cut coal's share of the European energy mix.

Pickering expects the US Department of Energy (DOE) will approve around 8bn cubic feet per day (cf/d) of LNG to be exported. Most of this will make its way to European markets, Pickering said. So far the DOE has approved 6.6bn cf/d of LNG to be exported from four projects in the US.

Whether European markets could absorb US volumes of LNG is uncertain.

Hans-Peter Floren, a member of OMV's executive board, said European gas demand for power generation will remain flat until at least 2020. While Europe's gas demand will remain weak for the next six years supply will remain ample from Russia and Norway. New projects coming online in the East Mediterranean and the Black Sea will also contribute, he said.

"It's really not encouraging. We have big challenges. We'll continue to face an oversupplied market," Floren said.

He added that Europe's commitment to subsidising renewable energy had heavily distorted the continent's energy markets. Germany has pursued an ambitious renewable energy policy since the Fukushima Dai'ichi nuclear disaster in 2011. Chancellor Angela Merkel wants renewable energy to make up 35% of Germany's energy mix by 2020, up from 23% in 2012.

While Germany has ramped up its renewable energy capacity considerably over the past few years this has come at a high price. Germany's renewable energy policy is paid for through a surcharge added to consumer's energy bills, which have soared over the past three years. Germany's former environment minister, Peter Altmaier, said last year that the scheme could cost €1 trillion ($1.3 trillion) by 2039.

In January this year Germany's energy minister, Sigmar Gabriel, pledged to cut subsidies paid to renewable energy producers. Gabriel wants to divert funds to research and development of renewable technologies rather than subsidising the industry through German taxpayers.

Phillipe Sauquet, the president of Total's gas and power division, said displacing coal with natural gas, rather than renewable energy, was the cheapest and quickest way to cut carbon emissions.

Sauquet said the costs of displacing one tonne of carbon dioxide (CO2) with gas would be around €50 per tonne (/t).The cost of displacing one tonne of CO2 with power generated from onshore wind would be around €52/t, he said. For offshore wind power ,the figure would be around €146/t.

Displacing coal with natural gas could boost demand in the EU 27 area by up to 20% by 2020, Sauquet claimed. This could save the continent between $40bn and $85bn between 2014 and 2020. This is assuming that European gas prices are around $10 per million British thermal units and carbon prices rise to around $25/t.

However total displacement of coal from Europe's energy mix is unlikely. BP expects coal to make up around 27% of the total energy mix by 2035. The company expects oil and natural gas to each comprise around 27% of the total global mix as well. While renewable energy capacity will increase, it will only make up 14% of total global electricity production by 2035.

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