Carbon price of coal shunts winter gas price higher

Bloomberg reports:

The highest prices for carbon credits in a decade have also lifted natural gas, discouraging power stations from making the switch away from coal. As a result, demand remains strong for the dirtiest fossil fuel in the continent that’s doing the most to clean up its economy. Coal prices as a result reached their highest in five years on Tuesday.

You might think the ETS impost on coal’s CO2 emissions, about twice those from natural gas, would give gas an edge, but you’d be wrong—rising prices for carbon credits have pushed up the gas prices too. The graph at right shows an eye-watering surge in the carbon price of about 400% over the last 11 months (although I guess 400% of nothing is still pretty small; so it could get worse). This financial punishment for the poor is a clear consequence of market interference by the climate justice do-gooders—nobody else has done this. The sooner they lose office the better, in the EU and everywhere.

The ETS mechanism raising the price of energy has collided with the tremendous demand for coal in China and India for the cheapest power available. They have been drawing in cargoes that were heading for power plants in Europe. That pushed up coal prices, which meant gas-fired generators and other users in China and Europe competed more strongly in a poorly-supplied gas market, pushing up gas prices as well. Coal prices have lifted because of the carbon surge but there hasn’t been enough spare gas to let generators get out of coal.

  1. The only reason for the ETS is to stop CO2 emissions. Calling coal the “dirtiest” fossil fuel conflates its real pollution (though not when burned in clean, modern plants) with clean, non-polluting CO2—it is propaganda.
  2. Power prices in most of the EU have continuously increased this century (check out the graph at right; the source is an interesting, interactive website with lots of options).
  3. The UN-driven, virtue-signalling ETS will cause the poor and the elderly to suffer this winter, just as they did last year.

Will prices keep rising as the Northern Hemisphere heads into another cold winter? Will it be as ferocious as it was last year (beware the staggering length of this list of cold records from around the world in 2017!)? Can the near-miraculous US fracking industry respond with increased stocks and ease prices? Can it react in time to avoid more deaths from freezing? Will the winter squeeze tighten the Gazprom hand on Europe’s throat?

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Barry BrillRichard Treadgold Recent comment authors
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Barry Brill
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Barry Brill

Over 80% of the world’s electricity is derived from coal and gas. Each of those fuels plays a key role in containing the price level of the other. Gas commands a small price premium over coal but that premium is well-known and very inelastic. Thus, a 10% rise in the price of coal means a (approximate) 10% rise in the equilibrium price of gas and a 10% rise in the ex-generator price of electricity. Back in the 1990s, oil and gas companies like Shell & BP were quick to see the opportunities offered by any government policy that artificially raises fuel prices based on carbon content. Coal would be hit twice as hard as gas. If a tax or ETS raised the price of coal by 10%, the value of their gas reserves would immediately jump by 10%. Although the same policy also took away 5% of their gas revenue, they could simply pass that on to their customers (with a margin), while pocketing the other 5%. The electricity generators/retailers didn’t complain because most are profit-regulated based on costs, and a higher costs base means higher net returns. Both green activists and gas… Read more »

Barry Brill
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Barry Brill

I thought I was just pulling together a few well-known facts. Which of my above points do you see as being controversial or counter-intuitive? I’ll be happy to expand.

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