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High gas prices demand creative climate thinking

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A general view of the liquefied natural gas plant operated by Sakhalin Energy at Prigorodnoye on the Pacific island of Sakhalin, Russia July 15, 2021. Picture taken July 15, 2021.

LONDON, Sept 13 (Reuters Breakingviews) - Natural gas is having its moment in the sun. The price of the fossil fuel in Europe has risen fivefold since last year, to more than 50 euros per megawatt hour. That has pushed power prices across the continent to their highest in over a decade, and presents both a problem and an opportunity for politicians preparing for November’s COP26 global climate conference.

Gas prices have surged largely because traders can see European storage levels are well below their five-year average. Imports from Russia are down, partly as a result of the lower flows through Ukraine negotiated by Moscow in 2019. Also, strong Asian demand for liquefied natural gas means LNG exports have shipped to Asia’s higher-priced market instead of Europe. Another factor is the near-trebling in carbon prices this year as the European Union reduces the supply of emissions credits. Soaring domestic energy prices will increase the risk of public discontent and protests, such as those mounted by the so-called yellow vests in France three years ago.

That poses a tricky challenge for the upcoming COP climate summit in Glasgow. Attendees want fossil fuels to be more expensive than wind and solar power and are taking steps to ensure that’s the case. For example, the United States said last month it would oppose multilateral development institutions like the World Bank helping to finance any new gas-fired projects in middle-income countries like China and India. If Glasgow negotiators are already on the defensive, they will be less likely to take tangible action on cutting emissions significantly.

One way to avoid this outcome would be to ramp up talks on a so-called “just transition”, whereby richer taxpayers shoulder more of the costs of decarbonisation. A UK Treasury report due next month is an opportunity to set a global template for tackling knotty issues like the fact that buildings account for nearly a fifth of the UK’s 500 million tonnes of annual carbon emissions. One solution would be to give poorer families grants and state-subsidised loans to replace gas-fired boilers with zero-emission ground-source heat pumps. And the $50 billion of receipts generated globally from carbon credits and taxation could flow to working families, as is already happening in Canada. The more this happens, the more soaring fossil fuel prices will seem a blessing, rather than a curse.

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CONTEXT NEWS

- Natural gas due for delivery in October via the Title Transfer Facility, a virtual trading hub in Holland, was trading at 60 euros per megawatt hour on Sept. 13. A year ago, a similar contract traded just around 11 euros per MWh.

- Carbon permits on Europe’s emissions trading system were trading at 62 euros per tonne, compared with 23 euros a tonne in October 2020.

- Power prices across Europe have surged to the highest levels in over a decade, with electricity to be delivered in the next calendar month topping 100 euros per MWh in most countries, according to a Bank of America research note dated Sept. 3.

- Each family of four in rural Saskatchewan will receive $1,100 as a refundable tax credit from the Canadian government, the Financial Times reported on Sept. 8. The figure corresponds roughly to the amount that Ottawa collects in yearly carbon taxes on the province’s citizens, the newspaper said.

- Residents of Manitoba, Alberta and Ontario are also eligible for the so-called Climate Action Incentive, which is awarded to those provinces subject to the federal government’s carbon tax and is higher for those living in rural areas. Other Canadian provinces have their own carbon taxes and are thus not eligible.

- Carbon pricing schemes generated $48 billion (42 billion euros) in 2019, according to the Institute for Climate Economics’ Global Carbon Accounts 2020 research.

Editing by Swaha Pattanaik and Oliver Taslic

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