Prices and gas-fired power stifling EU low-carbon economy

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Today, the U.K. government will announce new tax incentives for the development of shale gas, as well as a new department -- the Office for Unconventional Gas.

While the U.S. has already aggressively developed its shale gas production, the U.K. government is attempting to coordinate its efforts in this sector where gas prices are linked to global oil prices rather than any supply and demand, according to GlobalData.

"As a result, the USA is seeing its carbon emissions fall as gas-fired generation displaces coal," said Jonathan Lane, GlobalData's head of consulting for Power and Utilities. "Indeed, the USA, rather than Europe, seems well-placed to transition to a low carbon economy if -- and it's a very big if -- the fossil fuel lobby can be overcome. Gas-fired generation is the only serious technology that allows countries to reduce coal-fired generation whilst waiting for electricity storage technology to develop and be deployed with intermittent renewables, and the USA has low cost gas-fired power in abundance."

It is easy to understand how gas-fired power generation could help mitigate energy gaps in Europe, as governments look to transition away from coal-fired generation and nuclear. But the economics of gas-fired power in Europe are not easy more market interventions will be required.

Lane contends that carbon pricing is the problem. While the EU-ETS (Emissions Trading Scheme) has produced little in terms of influencing the generation mix, individual governments have been moving ahead with their own policies for promoting low carbon generation based on the affordability for each.

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