coal

Coal is a hot issue in this energy-starved world. There is a drive to get out of coal for a better climate. But coal is coming back in Europe.

A Bloomberg report said:

“Europe is so short of natural gas that the continent — usually seen as the poster child for the global fight against emissions — is turning to coal to meet electricity demand that is now back to pre-pandemic levels.”

The report said:

“Coal usage in the continent jumped 10% to 15% this year after a colder- and longer-than-usual winter left gas storage sites depleted, said Andy Sommer, team leader of fundamental analysis and modeling at Swiss trader Axpo Solutions AG. As economies reopen and people go back to the office, countries like Germany, the Netherlands and Poland turned to coal to keep the lights on.

“Europe has long been at the forefront of the battle to reduce global warming. The continent has the world’s largest carbon market, charging the likes of utilities, steel producers and cement makers for polluting the environment. But even with record carbon prices this year, low gas reserves mean burning coal — the dirtiest of fossil fuels — has become more widespread again.

“‘Energy demand has been pretty strong in Europe and we have seen a recovery from the pandemic,’ Sommer said in an interview. ‘Gas storage is so low now that Europe cannot afford to run extra power generation with the fuel.’”

It added:

“The return of coal is a setback for Europe ahead of the climate talks in Glasgow later this year. Leaders of the world’s biggest economies failed to set a firm date to end coal burning at the meeting of the Group of Seven at the weekend in Cornwall, U.K.

“Europe faced freezing temperatures earlier this year, boosting demand for heating at a time liquefied natural gas cargoes were being sent to Asia instead. Russia sent less gas to the continent via Ukraine ahead of the start of the Nord Stream 2 link to Germany, expected later this year.

“All of that mean that European storage is currently 25% below the five-year average and benchmark Dutch gas surged more than 50% this year. Futures are currently trading near their highest level for this time of the year since 2008.

“‘People thought Russia was going to book more capacity via Ukraine and that just hasn’t happened in a meaningful way,’ said Trevor Sikorski, head of natural gas and energy transition at consultants Energy Aspects in London. ‘The market is super tight, it’s trying to get less gas into power.’

“Electricity demand, which crashed as the coronavirus locked down cities from Frankfurt to London, is now back. Usage in countries including Germany, Spain and the Czech Republic are above the five-year average, while demand is flat in Italy and France, Morgan Stanley said in a report Monday.

“With gas supplies already tight amid heavy maintenance cutting flows from Norway, utilities have turned to coal to keep the lights on. While the price of carbon is trading near a record, many have hedged it years in advance. That means burning coal could still be profitable.

“Generators with ‘highly efficient’ new plants can probably manage to produce power from coal until 2023, even with high carbon prices, Axpo’s Sommer said.

“The G-7 recognized that coal is the single biggest cause of greenhouse gas emissions in its final communique. But the group promised only to ‘rapidly scale-up technologies and policies that further accelerate the transition away from unabated coal capacity.’

“‘It’s not a great a message to be sending,’ said Ursula Tonkin, portfolio manager of the Whitehelm Capital Low Carbon Core Infrastructure Fund, the Australia-based company that has $4.4 billion of assets under management in all of its funds.

“While it would be ‘fantastic’ if politicians came to a deal, coal is likely to be phased out anyway by 2030, 2035, said Tonkin. ‘Politics are important, but you also have the economics of the transition really kicking in within that timeframe,’ she said.”

Deep divisions in Europe over gas

There are deep divisions in Europe over gas.

A media report on the last EU energy ministers’ meeting (“Infrastructure dispute reveals deep divisions in Europe over gas”, by Kira Taylor, EURACTIV.com, Jun 15, 2021) said:

The final compromise text, agreed by EU countries on Friday, left some capitals unhappy with the bloc’s restrictive approach to gas while others refused to support it because it allows too much fossil gas into Europe’s future pipeline network.

What the Dutch delegation called an “even distribution of unhappiness” over the issue also casts a long shadow over any future debate around gas.

“It clearly shows how controversial the gas issue is, even within the institutions,” said Elisa Giannelli, policy advisor at E3G, a climate think tank.

“It’s a controversial issue that will keep splitting the majorities in every institution,” she added. “I think that what we saw on Friday doesn’t really set the best type of precedent for the upcoming legislation.”

The revision of the regulation on trans-European energy infrastructure (TEN-E) saw an even split between 11 mostly western European countries and nine mostly central and eastern European countries over natural gas.

Both sides had a blocking majority, making a compromise extremely difficult to find.

The hard-fought agreement left the door open for some natural gas projects, including grandfathering – or rolling over – for current projects in Cyprus and Malta aimed at connecting the two Mediterranean islands to the European gas grid.

Another hotly contested issue was whether the EU should provide financial support for blending hydrogen into fossil gas. Up to 20% hydrogen can be safely added to existing gas pipelines without requiring retrofitting, a move supporters say can be a first and easy step to decarbonise Europe’s gas grid. Above that threshold, pipelines require an expensive retrofitting or refurbishing to carry greater quantities of hydrogen.

On Friday, EU energy ministers agreed to end financial support for blending gas projects in 2027 rather than 2029. They also agreed to stop financing for “retrofitting” pipelines, but left in the possibility for “conversion”.

But according to Giannelli, this is more a play on words rather than a significant increase in ambition.

“I think that a better compromise could have been found. When you look at the original Commission proposal, yes, you have low-carbon references, but you don’t have any grandfathering, you don’t have any blending,” she told EURACTIV.

European Union energy ministers on Friday (11 June) agreed to prolong EU support for some cross-border natural gas projects, despite a push from 11 countries and the European Commission who said such funding should end to comply with climate change goals.

Europe divided

The report said:

The TEN-E regulation creates a framework for the European Union to finance cross-border energy infrastructure. It decides which projects qualify for Europe’s list of projects of common interest, which opens the door to faster permitting and a €5.8 billion pot of money exempt from EU state aid rules.

At Friday’s meeting, some EU countries, including the Czech Republic, Poland, Hungary, Bulgaria and Romania, supported a larger role for gas, with Poland suggesting blending could be permanent and the Czech Republic saying it could continue until 2035.

They were up against 11 mostly Western EU countries, led by Luxembourg, which wanted to keep gas out of the regulation.

Four of them refused to support the final agreement, with Spain citing issues around smart gas grids and Luxembourg, Germany and Austria refusing to support the wording around electrolysers, which are used to produce green hydrogen.

“The electrolysers category does not give enough priority to renewables” while “the smart gas grids category does not contain enough sustainability criteria and leaves the door open to low-carbon gases whose climatic performance is questionable,” said a diplomat from one of the four countries that refused to back the compromise.

Luxembourg led a last-minute attempt to boost the role of renewable power for electrolysers, but failed to garner enough support. Even Denmark, which had initially sided with Luxembourg, said it could live with the proposed compromise.

France, like Italy and Finland, has kept quiet throughout the gas debate. While earlier in the day, the French delegation had shown some support for limiting the role of gas, the country’s call to support the Portuguese EU Presidency proposal might have swayed other countries to support it, said Giannelli.

Eleven EU countries have signed a declaration calling on the European Union to stop funding fossil fuels under its trans-European energy infrastructure regulation (TEN-E), which is currently under revision.

Poland has a very different approach. According to Michał Kurtyka, Polish Minister of Climate and Environment, existing gas networks should be repurposed to transport hydrogen and help boost demand.

“We need to adapt the networks. We need to make sure that the already existing gas infrastructure will be adapted to also transport decarbonised gases, including hydrogen,” he said at an online event about hydrogen in Central and Eastern Europe on Friday (12 February).

The EURACTIV report said:

Existing gas networks should be repurposed to transport hydrogen and help boost demand, said Michał Kurtyka, Polish Minister of Climate and Environment at an online event about hydrogen in Central and Eastern Europe on Friday (12 February).

The TEN-E regulation is not the only piece of legislation covering gas. But it is the first to reach EU ministers, and as such, it holds huge political relevance as a waymarker in the gas debate.

The EU’s sustainable finance criteria has already met delays because of divisions over gas and these are only likely to grow as more laws are put on the table to be revised.

Another battle lies ahead in December when the European Commission is due to table a comprehensive revision of EU legislation covering gas.


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