EU Emissions Down 1.4% on 2011 as Double Dip Bites

Last year, some 1,876 million tonnes (Mt) of greenhouse gases were emitted from stationary installations by the 27 countries that participate in the European Union’s Emissions Trading Scheme (EU ETS), plus Norway in line with predictions from Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

This decrease in emissions, equivalent to 1.4% on the comparable 2011 figure of 1,904 Mt was due in large part to lower industrial activity, suggesting EU economies are still not out of the woods. Indeed, the decrease in emissions would have been greater had fuel switching from gas to coal not increased emissions in the power and heat sector last year by 44 Mt, or as much as 4%. European coal prices dropped by 17% last year, resulting in increased use of coal in electricity production.

“Although the reduction in emissions last year was less than the previous year, this was in large part due to higher emissions as a result of fuel switching rather than to a slowdown in economic contraction, suggesting that the EU is still a long way from recovery,” says Bjorn Inge Vik, senior analyst at Thomson Reuters Point Carbon.

Last year, emissions related to industrial activity fell by 51 Mt, or as much as 5%, with slowdown in output especially acute in the cement sector, where production fell by 13% year on year. Construction activity dropped 5% while crude steel production was down 3% year on year. Activity in the remaining sectors was largely in line with the previous year.

Moreover, last year’s emissions came in 346 Mt below the 2012 EU ETS cap, the largest annual gap between supply and demand since the market’s inception. “The scheme was oversupplied for the fourth year in a row and the seventh time in eight years, indicating that recovery has still not returned European economies to their pre-crash levels. The continuously falling emissions in the EU ETS is likely to intensify the discussions about political intervention to reduce the oversupply of allowances,” points out Bjorn Inge Vik.

The two highest emitting countries within the EU ETS; Germany and the UK, saw an increase in emissions of 2 Mt (1%) and 10 Mt (5%) respectively, however this was due to increased coal-fired power generation and not to the green shoots of recovery. “These increases in emissions are not due to economic recovery but rather to fuel switching,” says Yan Qin, senior analyst at Thomson Reuters Point Carbon.

The picture in Italy is even starker, however, with emissions last year falling by 11 Mt (6%), mainly due to decelerating cement production and strong growth in renewable generation. Yan Qin comments? “Italy’s cement sector saw a virtual collapse in emissions last year, indicating an economy in trouble. These emissions figures as a whole, taken in the context of the past 5 years, indicate that this recession eased in 2010 only to return thereafter, reflecting that the EU has indeed entered a double-dip downturn.”

For the first time this year’s emissions figures include emissions from airlines included in the EU ETS, which have reported emissions of 54 Mt. This number is preliminary as only 71% of airlines have reported emissions. It is uncertain if the reported emissions cover flights within EU only or intercontinental flights as well. Emissions from extra-EU flights will most likely be exempt from compliance obligations. Thomson Reuters Point Carbon expects intra-EU flights to have emitted 62 Mt in 2012.

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