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German nuclear closures may increase emissions by 493 Mt to 2020

Price of carbon could increase by €5/t forcing fuel switching from coal to gas across EU ETS

Oslo (22 June 2011)

The German government has agreed on a draft law to phase out nuclear power by 2022. The eight nuclear power plants that were closed in March in response to events in Japan will remain permanently closed, and earlier closure times will be enforced for the remaining nine plants. This could increase emissions by 493 Mt to 2020, according to analysis by Thomson Reuters Point Carbon. Such an increase in emissions would sufficiently push up the price of carbon that power generators across the EU’s Emissions Trading Scheme (EU ETS) would be incentivised to fuel switch away from coal in favour of gas generation.

“This total German phase-out of nuclear power by 2022 will result in an increase in emissions of the order of 493Mt between now and 2020, pushing carbon prices within the scheme up by as much as €5/t in phase 3, which runs from 2013-2020”, according to Daniel Jefferson, an analyst at Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets. “Generators will be keen to claw back some of the costs of higher carbon prices so we predict fuel switching across the entire EU ETS will take place, from coal, which is highly polluting, to gas, which is less carbon intensive”, Jefferson said.

Thomson Reuters Point Carbon believes that this fuel switch will begin immediately since carbon prices have already moved as a result of the German announcement. The price of EU Allowances (EUAs) jumped by around €1.50/t after the rethink on German nuclear was first announced, “so the economics of gas plant relative to coal plant will have been boosted from that point on”, explained Jefferson. “Although EUA prices have dropped back down over the past few days, partly as a result of worries about the European economy, they are still higher than they would have been had there not been a change in German nuclear policy, so gas plant will still be relatively economical as a result”, he added.

It may also be that Germany’s nuclear shut-down could result in more investment in renewable generation and energy efficiency. However, so far, Germany has not indicated that it will increase its 2020 target for renewable generation as a result of the change in nuclear policy, although it has suggested that it may pursue more ambitious energy efficiency targets.

Following the nuclear disaster in Japan, Germany placed a three-month moratorium on 7 nuclear plants built before 1980 and whose lives were due to be extended by an average of 12 years. The 8th plant; the Kr├╝mmel facility, had been closed for maintenance at the time of the Fukushima crisis, but was due to reopen in January next year. In addition, deadlines have now been set for the closure of the remaining nine plants, ranging from 2015 to 2022. Although these changes have not yet passed into law, they are supported by a strong consensus, and there are unlikely to be any obstacles to their being passed. The German parliament is set to vote on the legislation on 8th July.

Note to editors

• It should be noted that the predicted increase in emissions does not account for any additional gas or renewable capacity that might result from earlier nuclear closures.