The Path of Least Resistance

Investigation into coal plants outside EU borders that avoid carbon price on electricity imports.

Dr Chris Rosslowe

Senior Energy & Climate Data Analyst

29 January 2020 | 3 min read

About

This report investigates how coal power plants just outside European borders are supplying electricity to the EU while avoiding the carbon price.

• How much CO2 leakage is there from electricity today?
• What growth in imports should we expect?
• Could a carbon border adjustment on electricity work to reduce carbon leakage?

Executive summary

Coal emissions are leaking into the EU

EU countries are increasingly importing ‘tax-free electricity’ from outside the EU. Often, this electricity is generated with coal, in new ‘offshore carbon havens’ such as Turkey, Ukraine, Morocco and the Western Balkans. Grid connections through new electricity interconnector cables are growing fast – and so is the fleet of new coal power plants just outside the EU borders.

Allowing this carbon leakage to continue will undermine EU emissions cuts, as well as incentivising further use of coal in neighbouring countries. The solution is to apply a carbon price on electricity imports – also known as a border carbon adjustment (BCA). The European Commission are now investigating the idea, at the behest of new Commission President Ursula von der Leyen.

Europe’s carbon price is driving a new wave of coal plant building just beyond its borders. This high-carbon power is sneaking into the EU grid. The solution isn’t too complicated though: a border tax on the carbon in this imported electricity. With this one new policy, we can spread the emissions-cutting influence of the EU beyond its borders, and help neighbouring countries build clean energy faster.

Dr Chris Rosslowe Electricity Analyst, Ember
Chris Rosslowe

Europe must convince other economies to accelerate on climate actions while addressing the risk of carbon leakage at EU level. In the absence of equivalent carbon pricing for importers and European industry, border adjustments can be an option, whether in the form of a tax or a special ETS participation mechanism.

Henning Häder Energy Policy, Climate & Sustainability Manager, Eurelectric

In the Finnish context electricity from Russia is an issue of outsourcing emissions. We in the EU are on a clear path to a renewables based electricity system, and our neighbors should be as well. If we set up a carbon border tax for electricity, we would avoid exporting our emissions and bring our neighbors on board the shift to renewables.

Ville Niinistö MEP, Finland, Committee on Industry, Research and Energy

Investigation

How electricity generated from coal is leaking into the EU

Interconnectors are undoubtedly effective at lowering electricity costs and reducing curtailment of renewables. However, a disparity in carbon pricing at the border of the EU is creating a competitive advantage for high-carbon generators in neighbouring countries. We analyse the effect this is having on electricity imports and associated carbon emissions.

EU countries are increasingly importing ‘tax-free electricity’ from outside the EU

Net imports of electricity into the EU Emissions Trading System countries were up from 3TWh in 2017 to 21TWh in 2019. All the imports are from countries that have zero or near-zero carbon pricing. While not all of this is coal power, it is on average more carbon intensive that EU generation.

The main exporters to the EU are Russia, Ukraine, Turkey, and the Western Balkans.

We estimate imported electricity emitted 26 million tonnes of CO2 in 2019 – more than the annual emissions of Italy’s coal fleet, the EU’s 6th largest.

Had imports paid the EU ETS carbon price in 2019, they would have generated €630m of revenue for EU member states.

‘Offshore carbon havens’ are building coal plants to meet EU power demand

Up to 57GW of new coal power could come online in connected or soon-to-be connected countries.

Plans exist to increase interconnection between EU and non-EU states by 31% by 2030. This would see 5 additional countries without a carbon tax connected to EU grids.

Imports are already more carbon intensive, on average. We estimate that out of the 21 cross-border interconnectors, 17 connect an EU grid to a more carbon intensive non-EU grid.

Countries like Greece, Spain, and Croatia are most exposed. They have ambitious renewable electricity targets, and in some cases coal phase-out legislation, yet will remain exposed to carbon intensive imports. Without intervention, emissions could be “offshored” rather than genuinely reduced.

Electricity imports should pay a border carbon adjustment

Applying a Border Carbon Adjustment (BCA) for electricity is easier than for other internationally traded products (i.e. steel or cement), as flows of electricity are transparent, and the relatively simple production chain allows tracing of carbon emissions. Without ETS free-allocation, administration is easier, and trade politics are far simpler.

A border carbon adjustment on electricity would not only restore the integrity of EU climate policy, but also incentivise low-carbon electricity generation in neighbouring states, and the spread of carbon pricing.

Conclusion

A Border Carbon Adjustment on electricity

We propose that a border carbon adjustment is introduced for electricity entering the EU ETS region, until the trading partner in question implements an equivalent emissions trading scheme or carbon price of their own.

A BCA on electricity would:

  • Defend the integrity of EU climate policy by preventing the offshoring of power sector emissions.
  • Level the playing field for all generators operating in the same markets.
  • Protect progressive investments of governments and companies. We have shown that some of the highest-ambition EU member states will remain exposed to imports of carbon intensive electricity, just when investment in low carbon alternatives is needed in order to achieve climate goals.
  • Generate revenue for the EU. Revenue that could be used to support environmental projects or monitoring in neighbouring countries (generating political capital), or protect vulnerable customers from any
    electricity price increases.
  • Incentivise carbon pricing in neighbouring countries. Rather than see revenue streams going to the EU, they may wish to redirect to themselves. This could instigate a domino effect of carbon pricing in EU neighbours.

Supporting Material

Downloads

Acknowledgements

Acknowledgements

Report cover photo by Nikola Johnny Mirkovic on Unsplash

Other photos by Matthew Henry, and Charles Devaux.

 

Ember & ClientEarth submitted a joint response to the EU Commission’s request for feedback on the inception impact assessment for the EU border carbon mechanism. This response focused on the energy sector, and repeated our call – from The Path of Least Resistance – for power sector emissions to be included. The joint response can be viewed on the Commission’s website.

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