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Carbon emissions laws to be relaxed as Europe turns to coal amid energy crisis

By Indrabati Lahiri

15:04, 8 September 2022

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In this article:
ARCH
Arch Coal, Inc. Class A
149.11 USD
0.56 +0.380%
1898
China Coal Energy
6.807 USD
-0.229 -3.300%
Natural Gas
Natural Gas
5.747 USD
0.406 +7.600%
1171
Yanzhou Coal
25.22 USD
0 0.000%

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A coal miner holding pieces of coal
Carbon emission laws are likely to take a backseat this winter as Europe burns more coal – Photo: Shutterstock

Europe is currently in the middle of a deepening energy crisis, which will force it to burn more coal and rethink carbon policies if it gets worse. This has mostly been fuelled by the Russia-Ukraine war, which has sparked a number of international sanctions on Russia. This has led to the EU government calling for the need to temporarily stop EU carbon policies, in order to counterract energy prices. 

This move has come after Russia recently announcing a halt in gas exports citing a leak in the Nord Stream 1 pipeline. Not only that, but Russia has announced that it will not resume gas exports to Europe at full capacity until sanctions are removed. This move has been considered Putin’s declaration of all-out energy war on Europe. Hence, without Russian energy to see Europe through this winter, the continent will be forced to turn to coal, thus requiring a pause in carbon regulations. 

On Friday 9th September, EU ministers will be holding a key emergency energy meeting in order to decide the outcome for EU carbon regulations. 

Yanzhou Coal (1171) has seen an over 70% surge since the start of July

Will carbon emission laws take a backseat as Europe burns coal this winter?

Although the EU has called for carbon regulations to be temporarily halted, in order to give European countries more leeway to burn coal this winter, the International Energy Trading Association (IETA) has dismissed suggestions that the EU Emissions Trading System should be suspended for the time being because of the energy price crisis. 

This is mostly due to the timeline that such as decision would take, as it would need to be translated and approved by 27 national legislations, with any changes having to be approved both by the EU, as well as all individual member states. This is likely to take an estimated 1.5 or 2 years. Thus, even if all member states did approve such a move, it would be quite useless in order to tackle the current energy crisis. 

However, a number of countries may be on board to sell more carbon permits to industries, which would give them the green signal to burn more coal. Although the IETA is still somewhat against this, this would likely be a temporary move for the near future, after which, post 2026, a greater effort to reduce carbon permits would take place.

Additionally, the revenue earned from the sale of these extra carbon permits right now are likely to be used towards the setting up and speeding up of renewable energy facilities across Europe, in order to reduce Europe's dependence on fossil fuels. This dependence has largely been acknowledged as the root of Europe's current energy crisis, rather than Russian factors. 

Germany has already announced that it is rethinking its climate change goals and is likely to put a halt on its 2035 targets for greenhouse gas emissions neutrality. Instead, now, the country is likely to push out this target until after coal-fired energy plants have been gotten rid of entirely. However, there is no new timeline for this.

This is likely due to a majority of Europe being forced to turn to coal and other energy options this winter after the fallout of the ongoing Russia-Ukraine war and subsequent pause in energy exports from Russia. Thus, in the face of a worsening energy crisis, climate laws are likely to take a backseat for the near future, as Europe figures out long-term energy options that do not involve Russia.

Silver

22.77 Price
+2.540% 1D Chg, %
Long position overnight fee -0.0062%
Short position overnight fee 0.0023%
Overnight fee time 22:00 (UTC)
Spread 0.020

Oil - Crude

72.41 Price
-2.980% 1D Chg, %
Long position overnight fee -0.0156%
Short position overnight fee 0.0013%
Overnight fee time 22:00 (UTC)
Spread 0.03

Natural Gas

5.75 Price
+7.600% 1D Chg, %
Long position overnight fee 0.0464%
Short position overnight fee -0.0723%
Overnight fee time 22:00 (UTC)
Spread 0.006

Gold

1,789.66 Price
+1.040% 1D Chg, %
Long position overnight fee -0.0061%
Short position overnight fee 0.0025%
Overnight fee time 22:00 (UTC)
Spread 0.18

This will be quite a task, since Germany currently imports about 55% of its energy from Russia, much like several other European countries. Although many are trying to set up renewable energy plants, such as solar, wind and hydro, most are not expected to be fully operational until a few years down the line, hence will not be able to fight off the current energy crisis.

Germany has also gone on to reveal that even though it has plans to phase out coal energy plants in the long run, for now, it is considering reopening some of the coal plants it had previously shut, to tide it over the next few months.

On the other side, some renewable energy laws are being given even more importance than before, as Germany hastens to issue more permits to renewable energy manufacturers. This is mostly to be done by classifying renewable energy to be for public security and interest.

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Which coal miners could potentially profit in this case?

Yanzhou Coal (1171), based in Zoucheng, China, is likely to be one of the coal miners which benefits the most from rising coal prices, as it has already demonstrated by rising over 70% since the start of July. This could potentially be due to China’s enormous domestic demand for coal, especially to power its massive industrial and manufacturing sector.

Similarly, China Coal Energy Company (1898) has also increased about 29% since the beginning of August, with investors hoping that this trend continues and the company gets a larger piece of China’s coal demand.

Although American coal miners such as Arch Coal (ARCH), have not yet seen much gains, investors are hopeful that they will catch up soon, as the energy crisis is likely to also hit the US hard in the coming few months, especially coupled with consistently rising interest rates.

 

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