OREANDA-NEWS. A French task force on carbon pricing has released its final report with recommendations in three key areas — a domestic measure to deter coal-fired power generation, a price corridor for the EU emissions trading scheme (ETS), and the growth of carbon pricing schemes.

The report was commissioned by environment minister Segolene Royal and was written by French private-sector energy company Engie's chairman of the board of directors, Gerard Mestrallet, economist Alain Grandjean and the head of the French section of environmental organisation WWF Pascal Canfin.

In regard to the domestic measure two principal options were evaluated. First, a uniform tax on the electricity that would act as a top-up to price to the EU ETS in a similar way to the UK carbon price support. Second, a measure that would more specifically target coal-fired generation sector, such as emissions performance standards or the increase of an existing tax on coal.

The authors were strongly in favour of the second option, stating that a uniform tax, which would have to be set at €30/t CO2 equivalent (CO2e), would have a number of downsides, including reducing the running times of French gas plants to less than 500 h/yr, with knock-on implications for security of supply. "This measure applied without distinction to coal and gas would weaken considerably French combined cycle gas plants [CCGTs] without a clear environmental benefit," the report said.

It outlined other negative effects of a uniform tax including reducing the electricity export balance of France, raising the domestic electricity price by between 5pc and 10pc, and boosting the surplus of credits in the EU ETS by 3mn-6mn t CO2e. This in turn would lead to a fall in EU ETS prices of €0.71/t CO2e in 2017 and €0.15/t CO2e in 2020.

The government did not explicitly accept the recommendation of a coal-based measure but reiterated its determination to put some kind of domestic policy in place by the beginning of 2017. It will publish its plan by the end of July so that it can be included in the next draft budget law.

In regard to the EU ETS the report recommends three proposals — a tightening of the overall cap by increasing the linear reduction factor to either 2.4pc or 2.6pc, a price corridor, and an independent review system that would evaluate the levels of the price corridor every five years. A floor price in the scheme should be set between €20/t CO2e and €30/t CO2e in 2020, with an increase of 5-10pc/yr so that it exceeds €50/t CO2e in 2030. The ceiling price would start at €50/t CO2e in 2020 and grow at a similar rate.

The floor price would be implemented by setting a reserve price at auction below which allowances could not sell. Prices in the secondary market would then slowly converge with the reserve price. The ceiling price would work by releasing allowances from the market stability reserve (MSR) if prices in the scheme reached that level.