What will Germany’s coal phase-out mean for the EU carbon market?

(EurActiv, 28 Jan 2020) When Germany eventually closes its coal-fired power plants, millions of CO2 pollution credits will be flushed into the EU emissions trading system, threatening to send the EU carbon market crashing. EURACTIV Germany reports.

Germany has finally agreed a roadmap to shut down its coal-fired power plants, which generate a total of 42 GW of electricity – all by 2038.

The planned phase-out raised the question of what to do with unused CO2 emission certificates, which power plants were eligible to receive.

The current draft bill now contains what most experts had demanded: Germany will cancel the released certificates and thus take them off the EU carbon market, the emissions trading scheme (ETS).

“At least in the short term, this is the only logical solution,” said Michael Pahle, a researcher at the Potsdam Institute for Climate Impact Research (PIK).

‘Waterbed effect’

But it is not quite as simple as that because Germany’s coal phase-out has a significant impact on the European market and could cause emissions to soar elsewhere.

The reason for this is the so-called “waterbed effect”: if CO2 prices fall as a result of lower demand, this will be an incentive for polluters to buy the credits on the market and emit more instead of seeking to cut emissions.

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EurActiv, 28 Jan 2020: What will Germany’s coal phase-out mean for the EU carbon market?