The new IHS CERA special report, “Sound Energy Policy for Europe: Pragmatic Pathways to a Low-Carbon Economy,” highlights critical policy reform needed if the EU is to move toward a competitive low-carbon economy.
- Power markets must reward availability and flexibility, as well as generation. Without movement in this direction, it is unlikely that the investment in flexible conventional power plants necessary to complement renewables will be made, which could threaten reliability of supply.
- The European carbon market risks being sidestepped by measures in support of clean technologies and efficiency. This could result in higher costs of abatement. Although strengthening the cap would provide a stronger price signal, this would be insufficient. IHS CERA believes that a more structural reform of the European Emissions Trading System (ETS) is needed to provide investors with more confidence in the long-term price trajectory of carbon and facilitate investment in clean technologies.
- Natural gas-fired power generation is a proven, cost-competitive, clean technology that has already played and can continue to play a key role in reducing carbon emissions. Natural gas-fired power can provide Europe with a reliable power generation platform that can serve either as lower carbon base power production or provide flexible backup for intermittent renewable energies as and when they can be successfully ramped up. Natural gas represents a necessary and low-regret strategy that provides optionality.
- Policy also must recognize the greater abundance and flexibility of natural gas, given recent global developments in liquefied natural gas and shale gas. These developments should help mitigate concerns about inevitable rising prices for fossil fuels and risks to security of supply.