Interactions Between Climate Policies in the Power Sector - Green Energy and Efficiency: An Economic Perspective - page 269

In particular, the review focuses on the comparison of scenarios where only a
carbon price instrument is used with scenarios where a carbon price is combined
with RES-E support mechanisms. The comparison across studies is not feasible
given the different assumptions and parameters. 11 However, it is possible to extract
some general conclusions:

rst, the empirical evidence shows that the impact of
RES-E support policies on the price of carbon is substantial and extreme cases
might drive the carbon price close to zero, making the ETS a super uous instru-

ment; second, RES-E support mechanisms lower the wholesale power price but, if
they are

nanced through an uplift on nal consumers, they might end up

increasing electricity retail prices; and nally, RES-E support mechanisms are an

expensive policy instrument that increases the abatement costs and reduces welfare.
Table 1 in the annex summarises the main results.

3.1 Impact on Carbon Prices

Practically all the studies analysed conclude that the combination of carbon markets
and renewable support mechanisms reduce the carbon price. The existence of RES-
E support mechanisms creates incentives to invest in renewable energy and reduces
the demand for carbon certicates. This makes the carbon market constraint less
binding and therefore the permit price lower. As pointed by De Jonghe et al. [ 10 ],
for a relatively high quota of renewables, the carbon allowance price is more
dependent on the quota than on the carbon restriction. In the extreme case, for a
suf ciently high renewables quota, the carbon price can be close to zero. 12

The impact on carbon prices of policies based on renewable targets varies
substantially from case to case but they imply in most cases price reductions above
50 %.

3.2 Impact on Electricity Prices

The impact of combining policy instruments on retail electricity prices varies sub-
stantially from case to case. There are several issues at stake that may have opposite
impacts: on the one hand, the increase in the renewables quota reduces the carbon
price and will therefore tend to reduce power prices. Also, since the production of
renewable energy usually will enter the spot market at a price close to zero, the

11 The comparison of the results of the different analysis is complex given the large number of
scenarios and parameters involved, the different assumptions, targets and diverse geographical
coverage and the timeframe of the different exercises. The analysis at national level requires for
example strong simplifying assumptions regarding the existing interferences in other countries.
12 Abrell and Weigt [ 1 ] reach this result for a quota of 20 %. However, their results seem too low
as compared to G ö tz et al. [ 15 ].