Coal use will rise an estimated 13.5 percent in Germany this year, resulting in at least 14 million metric tons of additional carbon dioxide (CO2) emissions, even as the nation continues to idle two-fifths of its nuclear power fleet.

The major reduction in European energy demand and industrial output caused by the global recession has led CO2 emissions to slide faster than the emissions reductions mandated by either the Emissions Trading Scheme or the EU's commitments under the Kyoto Protocol. Yet instead of accelerating emissions cuts, the ironic economics of the carbon trading system have justified a return to coal in Germany and elsewhere, as a glut of emissions permits drives down the cost of carbon pollution and makes coal highly profitable once again.

The odd logic of the emissions targets and timetables has even been used by German greens (and their defenders internationally) to justify trading zero carbon nuclear for greater coal combustion. Germany's decision last year to power down eight of its 17 nuclear reactors leaves idle enough zero carbon power to drive down the country's CO2 emissions another 21 percent from 2008 levels. Yet instead of sounding the alarm at this huge missed opportunity as the nation instead turns back towards coal, some German greens have gone so far as to claim Germany literally "has the right" to eschew nuclear in favor of much greater emissions levels than necessary.

So much for the extreme urgency of climate mitigation...

Rather than Accelerate Carbon Cuts, Recession Leads to Resurgence of Coal

Europe's economic slump has reduced total electricity demand and cut output at industrial facilities across the Eurozone. Both factors have reduced demand for emissions permits under the EU's Emissions Trading Scheme, a cap-and-trade system covering major sources of CO2 emissions in industrial and power generation sectors. The recession has helped push down EU emissions in sectors covered by the ETS by just over 2 percent last year, Reuters reports, creating several hundred million tons of excess emissions permits.

Instead of accelerating total CO2 reductions, however, the glut of emissions permits caused by the recession is leading to a resurgence of coal burning in Europe.

As demand for emissions permits has slumped, permit prices have cratered, falling to around 7 euros (or $9.13) per metric ton of CO2 emitted, 60 percent below 2011 levels, according to Reuters.

Low permit prices have meant increased profitability for coal-burning power plants across European markets, particularly in Germany, where profits for coal-fired power plants are up 30 percent since the beginning of the year, reaching the highest levels since 2008, Reuters reports.

"If you have anything that's coal-fired in your generation park at the moment - be it lignite or hard coal - you will take advantage of the high margins and burn the stuff," a trader with a major German utility told reporters.

Utilities in Germany, the largest power market and economy in Europe, have increased their use of coal-fired power plants continuously since the beginning of the year,Reuters reports. Analysts now project annual coal-fired power generation in 2012 will increase to 130 million megawatt-hours (MWhs), an increase of 15.5 million MWhs or 13.5 percent over 2011 levels.

All that additional coal combustion means about 14 million metric tons of CO2, assuming utilities burn hard coal, according to estimates from Matteo Mazzoni, an energy and carbon analyst at Nomisma Energia. Emissions would be higher if German power plants turn to lignite, or brown coal, a dirtier variety with lower energy content that is plentiful in the country.

Even assuming utilities burn hard coal, the increased emissions would be the equivalent to about 6 percent of total German emissions in 2008, or the average annual emissions of 2.8 million U.S. cars.

Emissions Trading Scheme Acts as Effectively as Floor on Emissions as Cap

The up-tick in coal-combustion is an odd byproduct of the European Emissions Trading Scheme (ETS), designed to cap emissions from industrial and power sector polluters in 30 EU nations.

The trading scheme issues permits to emit CO2 in several year phases, to allow for variances in weather or industrial demand. The most recent phase extends from 2008 to 2012.

But when emissions fall faster than expected, as they have following the impact of the Great Recession and the Eurozone crisis, emissions permits quickly become oversupplied, providing incentive for power plants to turn back towards coal or to bank emissions permits, allowing higher emissions in future compliance periods. Either way, utilities have incentives to use up cheap permits while they last, increasing CO2 output now or (if permits are banked) in the future.

In this manner, the ETS can act just as effectively as a floor on total emissions in covered sectors as it can as a cap.

German Nuclear Capacity Idles as Coal-burning Increases

Even as German utilities burn more coal, eight of the nation's 17 nuclear reactors have sat idle since the March 2011 tsunami and accident at the Fukushima Dai-ichi nuclear power complex in Japan.

When all 17 German reactors were operating, they supplied 133 million MWhs of electricity. The idled reactors total 12.3 gigawatts (GW) of capacity, or 41 percent of Germany's total nuclear capacity of 20.3 GW. Assuming the shuttered reactors produce the same share of total nuclear electricity generation, they represent the capability to produce 54.4 million MWhs of zero-carbon electricity annually.

In other words, even as Germany increases their coal-use by 15.5 million MWh, they are idling enough capacity to instead drive down total-fired power generation by 54.4 million MWh. Assuming the combustion of hard coal, that would slash the nation's total CO2 emissions by 49 million metric tons, or an additional 20.8 percent reduction below 2008 levels. Emissions reductions would be even greater assuming nuclear generation displaced the combustion of lignite rather than hard coal.

What Happened to Dire Climate Warnings?

While the ETS can ensure total covered EU emissions will not rise higher than the emissions trajectory planned prior to the recession, it has clearly done nothing to turn the recession into an accelerating force for further CO2 cuts.

Instead, both the incentives created by the ETS and Germany's decision to idle almost half its nuclear fleet have led to an increase in coal combustion while squandering an opportunity to more rapidly reduce CO2 emissions and accelerate the transition away from fossil fuels.

Even as climate scientists counsel ever-more-urgent action to reduce greenhouse gas emissions and arrest climbing global temperatures, policy makers and green activists in Germany and elsewhere in Europe have decided that they are doing enough to reduce CO2 already.

Germany, and the EU at large, have certainly been aggressive at deploying renewable energy, improving efficiency, and otherwise cutting carbon emissions. For these efforts they should be lauded.

Yet Germany's total emissions from fossil fuels were already 11 percent lower than 1990 levels when the Kyoto Protocol was negotiated in 1997, and 20 percent lower when the ETS first went into effect in 2005. Germany's emissions declines were aided substantially by Reunification in 1990 and the subsequent modernization of the East German economy, which saw the closure of countless inefficient, outdated Soviet-era factories and power plants. More recently, the Great Recession and the Eurozone Crisis further slashed German and EU emissions.

Whatever the cause, should Germany's emissions reductions to date be used as an excuse to slow further carbon cuts to the minimum levels mandated by the ETS or the Kyoto Protocol? Do they justify leaving much greater emissions reductions opportunities sitting on the table? How urgent do European greens take their own dire warnings about impending climate catastrophe? Shouldn't climate activists sound alarm bells whenever coal use rises, rather than falls?

As the German green think tank, Heinrich Boll Stiftung, admits with honesty, shuttering the nation's nuclear plants will most certainly increase carbon emissions. But according to a pamphlet from the think tank, "Germany actually has the right to increase its carbon emissions since it completely blew past its Kyoto target of a 21 percent reduction [below 1990 levels by 2012]."

There you have the odd logic of emissions trading. And an unfortunate missed opportunity for much deeper carbon cuts.

Posted by Jesse Jenkins

This article was published with permission from The Breakthrough Institute