I want to clarify something which became clearer to me after writing the previous post.
There are two separable problems.
1. They are funding a lignite-fired power plant. But there are reasons which can justify that – for example, they claim that the new plant will be more efficient than the old one.
2. The EU is overriding the very legal and economic principles which it has itself implemented!
The EU ETS signals to the market that coal-fired power generation is undesirable. As the EU ETS is a market mechanism it will only work if matters are left to the market. The market needs to decide on its own that it does not want to fund coal-fired plants. If a non-market institution intervenes in financing of a power plant, and, moreover, requires a non-market government guarantee for the financing, the EU is saying loudly and clearly: “We are happy to override the very mechanisms which we have implemented.” When a government wilfully overrides the principles it embodies in its own laws, you start to get all sorts of problems.
Public funding of a lignite-fired power stations with a public guarantee seriously undermines the credibility of the EU’s faith in the market mechanism of the EU ETS. It says that the EU’s own institutions do not accept the principles upon which the EU ETS is based. This could have repercussions for how investors consider the EU, as its institutions are sending conflicting and dangerous messages.