Interactions Between Climate Policies in the Power Sector - Green Energy and Efficiency: An Economic Perspective - page 267

instruments have been widely used to promote the deployment of renewable
energies: TGCs which are based on an obligation to produce a certain amount of
renewable energy (a certi

cate is created per unit of renewable energy produced)
and direct subsidies per unit of renewable energy produced or FITs, which con-
stitute direct subsidies to the production of RES-E.
The ETS is the central piece of EU climate policies. The ETS allows exibility

to reduce carbon emissions across sectors without prescribing a speci c technology.

However, the ETS has proved not to be that effective because of design issues and
the lack of predictability.
Additional policy instruments and targets, such as RES-E support mechanisms,
seem to compensate the lack of con

dence on the ETS. However, there is no
evidence that such targets have been set consistently with the GHG emission
reduction targets. 4 Moreover, the fact that RES-E support policies are designed at
national level does not guarantee their consistency across countries. Also, there is
no evidence that governments have considered the interaction between their
national policies and the EU ETS when designing them. This has resulted, on the
one hand, in overinvestment in some technologies such as solar photovoltaic in
Spain and Germany and, on the other hand, a poor performance of the ETS.
There have been several factors that have affected the functioning of the ETS and
that might justify the use of additional instruments:
First, the excessive number of emission permits has made the ETS ineffective.
Companies have received a large amount of permits to pollute limiting its obliga-
tions to reduce their carbon emissions. The excess of emission permits has been
estimated on an overall surplus of 267 MtCO 2 e in the 2007) 5 and rst phase (2005

-

2012). 6 The excessive number of permits
leads to lower carbon prices and a poor performance of the ETS.
Second, the systematic free allocation of permits resulted in

970 MtCO 2 e in the second phase (2008

-

”
for the industry. Economic theory suggests that companies will partially pass
through the costs of the freely obtained permits and that has been proven the case
with the free permits allocated on energy-intensive industries. Bruyn et al. [ 8 ] show
that carbon prices have a signi

“ windfall pro ts

cant in uence on several product prices, and esti-

mated that windfall pro neries, iron and steel and chemical sectors

accounted for 14 billion of euros during the period 2005

ts in the re

2008.

-

4 In fact, according to the Commission impact analysis of the 2009 Climate Package (ANNEX TO
THE IMPACT ASSESSMENT. Document accompanying the Package of Implementation mea-
sures for the EU objectives on climate change and renewable energy for 2020, p. 34), meeting the
GHG reduction target would only require 15.8 % of renewables in total energy consumption. This
implies that the remaining 4.2 % increased the cost of reducing emissions and, thus, did not
constitute a cost efcient way to reduce GHG emissions. The Commission naively stated that
putting a renewables policy in place would lower the carbon price necessary to deliver the GHG
reduction commitment from 39/tCO 2 but did not evaluate the total cost of meeting

the GHG target under the different scenarios.
5 CTW [ 9 ].
6 Kossoy and Ambrosi [ 19 ].

€ 49/tCO 2 to €