• Clean Coal Centre analysis of carbon pricing finds stability and clarity most important

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      Patrick Lavery

      Combustion Industry News Editor

The International Energy Agency’s Clean Coal Centre has released an analysis of the effectiveness of carbon pricing mechanisms and their impact on coal-firing and technology innovation. There are currently 61 carbon pricing systems operating across the world, 31 being carbon markets and 30 being taxes, and it is expected that more will come. The analysis, by the CCC’s Stephanie Metzger, finds that in practice, energy markets do not follow the models of the functioning developed by economists for various reasons – the presence of dominant companies, the effect of regulations and other government policies, pressure from lobby groups, security of energy supply concerns, and a limited appetite for risk on the part of some companies. To date, the effect of carbon pricing on the use of coal has been found to be uneven, with the biggest impact coming in fuel switching to gas, particularly in the EU since the carbon price rose in 2019 (and in the UK since it rose in 2015). There is some evidence also for carbon prices helping to secure investment decisions for carbon capture and storage facilities, such as the Sleipner and Snøhvit CCS projects in Norway (which has a carbon tax), which is a positive sign. Ms Metzger finds that ultimately, it is the relevant government’s overall intent and suite of energy policies that will determine how a carbon price affects the different actors in the sector. The most important takeaway, she concludes, is that “a stable and appropriately high carbon price with a predictable future can provide the most clarity for all…a low and unstable price is more likely to be confusing and ineffective, with companies unsure of how to plan for future investments.”