The coal phase-out in Germany is expected to lead to a drop in the price of EU CO2 certificates. However, a recent study by the Potsdam Institute for Climate Impact Research (PIK) suggests that this could result in a shift of emissions to other countries rather than a reduction in emissions. The study proposes a minimum price for CO2 emissions as a solution. The EU Emissions Trading System (EU-ETS) has been in place since 2005, requiring around 10,000 companies and power producers to hold certificates for CO2 emissions. The aim was to make emissions a cost factor that would encourage companies to reduce emissions. Currently, German lignite power plants are among the largest buyers of CO2 certificates. With the shutdown of these plants, demand for certificates would decrease, leading to a significant drop in the price of CO2 certificates throughout the EU. As not all EU member states have decided to phase out coal, power plant operators in other countries could purchase cheaper emission rights, potentially leading to the construction of new coal-fired power plants instead of renewable energy sources.
The study suggests that CO2 emission certificates should be removed from the market to solve this paradoxical problem. Deleting existing and no longer needed CO2 certificates in Germany would prevent power plant operators in other countries from buying them cheaply and thus having no incentive to expand coal-based electricity production. Estimates suggest that deleting the corresponding certificates would cost Germany around €19 billion by 2050. The high costs for Germany could be prevented by a minimum price for CO2 emissions within the EU. Last year, the market price for CO2 certificates per tonne ranged from €15 to just under €30. The study proposes a significantly higher minimum price of between €30 and €60 per tonne of CO2. This would prevent companies abroad from releasing the harmful gas more cheaply and thus not increasing coal-based electricity production. Overall, this would lead to a reduction in CO2 emissions, as certificates that are not purchased due to the minimum price could be deleted.
Ottmar Edenhofer, co-author of the study and advocate for a CO2 tax, explains that “the introduction of a minimum price by a pioneer group from Germany, France, the Netherlands, and a few others could already be an important step towards an EU-wide minimum price.” The study highlights the importance of considering the unintended consequences of climate policies and the need for innovative solutions to address them.
