2011-07-07   Source: www.economist.com

The UK's greenhouse gas emissions are likely to fall and the cost of carbon emissions for industry will rise as a result of Germany's decision to shut down its nuclear power plants, a new analysis has shown.

Germany's own carbon emissions will rise, because the phase-out of nuclear power between now and 2022 will force an increased reliance on fossil fuels, such as coal and gas.

But this in turn is likely to push up the price of carbon permits within the European Union's emissions trading scheme – by about ？5 (£4.60) a tonne, according to research to be published on Wednesday by Thomson Reuters Point Carbon, an analyst company. If that happens, generators in many countries will switch from coal-fired power generation to gas, which produces less carbon, predicts Daniel Jefferson, author of the research.

"German nuclear closures will put pressure on the carbon price," he told the Guardian. "That means it will be more economic to run gas [fired power plants] than coal."

Current prices for EU carbon permits are about ？15 a tonne.

Jefferson said the UK, Spain and Italy were prime candidates to switch more generation from coal to an even greater reliance on gas. "In those countries where there is scope for a fuel switch from coal to gas, that is what we would expect to see happen," he said.

He said the use of renewables was also likely to increase as a result of the changes.

Germany's decision to phase out nuclear power, over safety fears in the wake of the Fukushima incident in Japan was announced by chancellor Angela Merkel last month. The country plans to increase its use of renewables and push for greater energy efficiency, but its use of fossil fuel power is also likely to rise. Point Carbon estimates that the result will be an increase in German emissions of 493 megatonnes in total by 2020.

Emissions will not rise overall across the EU because of Germany's decision, however, as under the EU emissions trading scheme there is an absolute cap on emissions from energy-intensive industry until 2020. But within Europe, countries where generators switch away from coal are likely to see their emissions dip.

The EU's emissions trading scheme imposes a cap on the amount of carbon that can be emitted from heavy industry, including power generation. Under the scheme, companies are awarded a quota of permits, each representing a tonne of carbon dioxide, and if companies wish to emit more they must buy spares from cleaner companies. This is supposed to spur the take-up of clean technologies, and spur greater energy efficiency.

In the case of fossil fuel generators, a higher price on carbon will make it more costly to burn coal, and encourage companies to switch to gas and renewables.

Following the German decision to shut its nuclear plants, eight plants that were closed during the previous moratorium will remain permanently closed, and lifetime extensions for the remaining nine plants will be abandoned, with all reactors will be phased out by 2022.

Point Carbon calculated that the eight plants that have been permanently closed amount to more than 8GW of generating capacity.