Avoiding A Carbon Crash

The policy brief examines the interaction between the European Union's coal phase-out and the EU Emissions Trading System (EU ETS). It warns that closing coal plants without adjusting the ETS could create a 'coal bubble' of up to 6.18 billion excess permits by 2040, depressing carbon prices and undermining climate incentives. While the EU ETS supports the transition by making coal less profitable, the author argues it cannot deliver a full phase-out alone. The document recommends increasing the Market Stability Reserve (MSR) intake rate to 36% from 2024, increasing the Linear Reduction Factor to 4.2%, and allowing the cancellation of allowances for any closed ETS installation to maintain market effectiveness.

• The closure of coal power plants in Europe could create a massive surplus of emission permits, potentially leading to 2.22 billion excess permits (2220Mt CO2e) between 2021 and 2030, growing to 6.18 billion permits by 2040.
• The EU ETS alone is insufficient to drive a full fuel switch from coal to gas or a transition to 100% renewable energy; for example, in Germany, fuel switching would only begin if allowance prices reached approximately 60€/tCO2e by 2030.
• The current Market Stability Reserve (MSR) is inadequate to handle the surplus from coal closures, especially as its intake rate is scheduled to drop from 24% to 12% in 2024.
• Carbon pricing has had a more significant impact in the UK than in Germany due to the UK's carbon price floor of 18£/tCO2e, contributing to a drop in coal's share of electricity generation from 42% to 7% between 2012 and 2017.
• To align the EU ETS with the 1.5°C target of the Paris Agreement and reach net-zero emissions by 2040, the Linear Reduction Factor (LRF) should be increased to 4.2%.
• Ten countries are responsible for 84% of Europe's energy-related greenhouse gas emissions and provide approximately €6.3 billion annually in subsidies to coal power generation.

APA

Carbon Market Watch (2019). Avoiding A Carbon Crash. https://carbonmarketwatch.org/wp-content/uploads/2019/09/CMW_AvoidingACarbonCrash.pdf

Chicago

Carbon Market Watch. Avoiding A Carbon Crash. 2019. https://carbonmarketwatch.org/wp-content/uploads/2019/09/CMW_AvoidingACarbonCrash.pdf.

Wikipedia

{{cite report |author=Carbon Market Watch |title=Avoiding A Carbon Crash |date=September 2019 |url=https://carbonmarketwatch.org/wp-content/uploads/2019/09/CMW_AvoidingACarbonCrash.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{carbonmarketwatch2019avoiding, author = {{Carbon Market Watch}}, title = {{Avoiding A Carbon Crash}}, institution = {Carbon Market Watch}, year = {2019}, month = sep, url = {https://carbonmarketwatch.org/wp-content/uploads/2019/09/CMW_AvoidingACarbonCrash.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }