Phasing out coal through electricity market regulation

Abstract:

The use of coal for power generation is incompatible with the EU decarbonization objective, but prohibiting it remains a national prerogative, in view of Member States’ right to determine their energy fuel mix. Instead, the European Union relies on market forces to drive the decarbonization of electricity supply. Building on the theory on the interactions of carbon and electricity pricing, this article examines how EU electricity law interacts with the EU Emissions Trading System (ETS) to facilitate the phase-out of coal power.

In line with the theory, the legal architecture governing the liberalization of the EU electricity market plays a crucial, but much overlooked, role in the EU decarbonization approach by neutralizing regulatory obstacles to the influence of the ETS on investment and closure decisions. The renewed competitiveness of coal power in the context of the 2021–2022 energy crisis emphasized the economic unpredictability associated with this market-based approach. However, calls for market reform must be considered with caution given the complex interactions of electricity and carbon pricing, and the potentially destabilizing effect of regulatory interference with the market architecture created to drive decarbonization within EU constitutional powers.