Interactions Between Climate Policies in the Power Sector - Green Energy and Efficiency: An Economic Perspective - page 266

such as job creation, industrial policy related goals or energy independence are not
included in the analysis.
The chapter is organized as follows. Section 2 brie

y presents the potential

contradictions and de ciencies of the current EU climate policy framework as an

illustration of the poor coordination of multiple instruments. Section 3 reviews
some empirical evidence on the interaction of several policy instruments and the
implications for carbon prices, power prices and the policy costs. Section 4 presents
a simple theoretical model that will be used to analyse different policy scenarios
where additional policies might be used. Section 5 analyses, using the theoretical
model, how different market imperfections and failures can be internalised in the
design of optimal policies. Section 6 concludes with policy recommendations.

2 Interaction Between Policy Instruments: The Case of EU
Climate Policies

The European Commission (EC) recently announced the EU climate objectives for
2030: A reduction in GHG emissions by 40 % below the 1990 level and an EU-wide
binding target for renewable energy of at least 27 %. 1 The new 2030 targets are a
continuation of the ambitious 20/20/20 plan launched by the EC in 2009. 2
The EU climate policy route is an example of multiple non-consistent targets and
instruments. Such inconsistency comes from two sources: rst, from the lack of

evidence on the complementarity between the different targets and between the
different instruments and, second, from the different geographic dimension of the
policy instruments, which combine Europe-wide instruments such as the ETS with
domestic policies such RES-E support mechanisms without explicit coordination
mechanisms across member states. 3
The EU framework sets a target for GHG emission reduction and national quotas
for renewables. The ETS is the most ambitious instrument to reduce emissions. It
consists of a cap-and-trade scheme that covers almost 50 % of EU GHG emissions.
In addition to the ETS, there is a range of mostly domestic measures designed to
reduce emissions in sectors not covered by the ETS.
The attainment of the renewables target has been mostly delegated to national
governments. Each member state is free to design the necessary instruments to meet
its domestic target.

In particular, in the power sector two RES-E support

1

See IP/14/54 (22/01/2014): “ 2030 climate and energy goals for a competitive, secure and low-

carbon EU economy available at http://europa.eu/rapid/press-release_IP-14-54_en.htm .

2 The Climate and Energy Package set the guiding principles for the EU climate policy until 2020:
a 20 % reduction in greenhouse gas emissions from 1990 levels, an increase of the share of EU
energy consumption produced from renewable resources to 20 % and a 20 % improvement in the
EU

”

s energy ef ciency.
3 Batlle et al. [ 2 ] provide a comprehensive review of the interactions between EU climate policy
instruments in the power sector.

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