Dynamics of energy sector and GHG emissions in Saudi Arabia

The energy sector is the main contributor to GHG emissions in Saudi Arabia. The tremendous growth of GHG emissions poses serious challenges for the Kingdom in terms of their reduction targets, and also the mitigation of the associated climate changes. The rising trend of population and urbanization affects the energy demand, which results in a faster rate of increase in GHG emissions. The major energy sector sources that contribute to GHG emissions include the electricity generation, road transport, desalination plants, petroleum refining, petrochemical, cement, iron and steel, and fertilizer industries. In recent years, the energy sector has become the major source, accounting for more than 90% of national CO₂ emissions. Although a substantial amount of research has been conducted on renewable energy resources, a sustainable shift from petroleum resources is yet to be achieved. Public awareness, access to energy-efficient technology, and the development and implementation of a legislative framework, energy pricing policies, and renewable and alternative energy policies are not mature enough to ensure a significant reduction in GHG emissions from the energy sector. An innovative and integrated solution that best serves the Kingdom's long-term needs and exploits potential indigenous, renewable, and alternative energy resources while maintaining its sustainable development stride is essential.

Policy relevance

The main contributor to GHG emissions in Saudi Arabia is the energy sector that accounts for more than 90% of the national CO₂ emissions. Tremendous growth of GHG emissions poses serious challenges for the Kingdom in their reduction and mitigating the associated climate changes. This study examines the changing patterns of different activities associated with energy sector, the pertinent challenges, and the opportunities that promise reduction of GHG emissions while providing national energy and economic security. The importance of achieving timely, sustained, and increasing reductions in GHG emissions means that a combination of policies may be needed. This study points to the long-term importance of making near- and medium-term policy choices on a well-informed, strategic basis. This analytical paper is expected to provide useful information to the national policy makers and other decision makers. It may also contribute to the GHG emission inventories and the climate change negotiations.     

Low carbon scenarios and policies for the power sector in Botswana

The Government of Botswana has pledged a nationally determined contribution (NDC) as a commitment to the Paris Agreement. For the power sector, the NDC states that the government expects renewable energy (RE) to meet 25% of peak electricity demand by 2030. However, due to high initial cost of RE technologies, the government plans to maintain a coal-based power system in the future. Therefore, the purpose of this paper is to examine Botswana’s national plan from an economic perspective, using scenario and cost analysis, to explore the possibility of the power sector’s low carbon transition in the light of Botswana’s NDC. Five scenarios are designed to reflect a range of investment cost changes of RE technologies. While most scenarios only achieve 19% (P3, P4 and P5) and 54% (P6) of the NDC’s power sector target, the P7 scenario far exceeds the goal by achieving 188% of the NDC target. Furthermore, as the difference of levelized cost of electricity among the scenarios is minimal, the P7 scenario is the most attractive pathway for the government. Even for other scenarios, the government should still deploy the suggested capacity of solar photovoltaic (PV) as it is both economically and socially beneficial in the long term. However, in these cases, the government’s political will to meet the NDC’s power sector target and to promote the solar PV industry will be critical in designing future power sector policies.

Key policy insights

• Model results show coal as the cheapest resource for electricity generation in Botswana up to 2030, but the cost competitiveness of solar photovoltaic (PV) against coal will continue to increase over time.

• It is economically and socially beneficial to adjust the current national plan and substitute some share of coal with solar PV in the future energy mix.

• Government support is critical in achieving the power sector’s NDC target, as cost reduction of solar PV alone does not guarantee success.

• Encouraging independent power producers (IPP) with financial support mechanisms would be a suitable business model for developing the renewable energy industry.

     

中国电力行业碳排放达峰及减排潜力分析

推动电力行业低碳发展是中国有效控制CO₂排放和推动尽早达峰的重要抓手。在分别利用学习曲线工具和自下而上技术核算方式分析风电、光伏两类主要的可再生电力和其他各类电源发展趋势的基础上,综合评估了既有政策和强化政策条件下2035年前中国电力行业能源活动碳排放变化趋势。研究发现,既有政策情景下电力行业碳排放在2030年左右达到峰值,届时非化石能源在发电量中比重为44%,而通过强化推动能源绿色低碳发展的相关政策,2025年前即可达到电力行业碳排放峰值,2030年非化石电力在发电量中比重可以提升至51%,其中可再生电力加速发展将分别贡献2025、2030和2035年当年减排量（相对于既有政策情景）的45%、54%和62%。尽管从保障电力稳定安全供应角度,煤电装机仍有一定增长空间,但考虑到电力行业绿色低碳和可持续发展的长期需求,仍应加强对煤电装机的有效控制,“十四五”期间努力将煤电装机控制在11亿kW左右的水平。     

The design of California's cap-and-trade and its impact on electricity markets

California is considering the adoption of a cap-and-trade regulatory mechanism for regulating the greenhouse gas emissions from electricity and perhaps other industries. Two options have been widely discussed for implementing cap-and-trade in the electricity industry. The first is to regulate the emissions from electricity at the load-serving entity (LSE) level. The second option for implementation of cap-and-trade has been called the ‘first-seller’ approach. Conceptually, under first-seller, individual sources (i.e. power plants) within California would be responsible for their emissions, as with traditional cap-and-trade systems. Emissions from imports would be assigned to the ‘importing firm’. An option that has not been as widely discussed is to implement a pure source-based system within California, effectively excluding imports from the cap-and-trade system altogether. This article examines these three approaches to implementing cap-and-trade for California's electricity sector. The article discusses many of the issues relating to measurement and the impacts on bidding and scheduling incentives that are created by the various regulatory regimes.     

Assessing the value of price caps and floors

This article assesses the long-term economic and climatic effects of introducing price caps and price floors in hypothetical global climate change mitigation policy. Based on emission trends, abatement costs and equilibrium climate sensitivity from IPCC and IEA reports, this quantitative analysis confirms that price caps could significantly reduce economic uncertainty. This uncertainty stems primarily from unpredictable economic growth and energy prices, and ultimately unabated emission trends. In addition, the development of abatement technologies is uncertain. Furthermore, this analysis shows that rigid targets may entail greater economic risks with little or no comparative advantage for the climate. More ambitious emission objectives, combined with price caps and price floors, could still entail significantly lower expected costs while driving similar, or even slightly better, climatic outcomes in probabilistic terms.     

Vehicle tax policies and new passenger car CO2 performance in EU member states

This article explores the causes for differences in the average CO₂ emissions intensity of the new passenger car (NPC) fleet in member states (MS) across Europe. Although EU policies mitigating CO₂ emissions from NPCs have been in place since 1999, MS strongly diverge in the absolute amount and relative change in emissions over the last decade. The authors employ a qualitative approach to analyse the factors, in particular national vehicle taxes, contributing to this divergence and the relative contribution of national and European policies in reducing national CO₂ emissions from NPCs. The analysis shows that there has been a significant reduction in CO₂ emissions intensity of NPCs since 2007 across most MS, compared with the six years previous to that date. This would indicate that EU-wide policies, such as the CO₂ vehicles regulation, along with the economic recession in 2008, have influenced national NPC CO₂ emissions. Generally, countries with CO₂-differentiated vehicle taxes are observed as more likely to have achieved greater reductions in CO₂ emissions. However, over the same period there have been many confounding factors, such as economic instability in the EU, that also influence NPC emissions. Using more detailed case study analyses of six countries, the authors find that there is scope for well-designed national vehicle tax policies to drive NPC emissions down further than the EU average. In countries with the highest success rate, such as the Netherlands, the design of the vehicle tax, as part of a well-aligned policy package, has been very important in delivering the biggest reductions in CO₂ emissions from NPCs.

POLICY RELEVANCE

The transport sector continues to be an intractable source of CO₂ emissions. Governments around the world are seeking effective policies to deal with the increase in passenger car CO₂ emissions appropriate to their own circumstances. This article examines the experience of EU MS with CO₂-differentiated vehicle taxes in reducing CO₂ emissions in the context of other national and international contributing factors. It should therefore both be useful to policy makers and contribute to climate policy research in general.     

Chinese and multilateral development finance in the power sector

Public developmental institutions are pivotal in shaping the contours of the electricity sector of the developing world and its associated greenhouse gas emissions pathways. However, we have a fragmented and incomplete picture of the evolution of their investments over time and space. This is particularly the case for the recent rise of various Chinese Developmental Institutions (CDIs) for which infrastructure investment estimates range in the trillions under China’s Belt and Road Initiative (BRI) and for which data is mostly not publicly disclosed. We address this gap in two ways: first, we compile and analyze a novel dataset that draws on commercial data tracking, publicly available datasets, and more than 1,000 supporting documents to match financial transactions by the main CDIs and traditional Multilateral Development Banks (MDBs) to power plant projects worldwide. This allows us to conduct a quantitative, comparative analysis of the role of CDIs and MDBs to understand the relative size, technology, and country focus of such investments in the period 1999–2020. Second, we complement the quantitative dataset with 39 expert interviews to shed light on the drivers behind the Chinese investments, with a particular focus on coal projects. The analysis shows that CDIs have rapidly emerged as the largest public finance provider for the electricity sector in the developing world. We also find that, in contrast with the increasingly green BRI rhetoric, the technology portfolio of CDI investments in power plants is still heavily dominated by coal plants. Over time, however, CDIs have increasingly supported more efficient coal plants and increased the share of their portfolio supporting non-hydro renewables and supported a growing number of projects jointly with MDBs. Steering China’s bilateral coal finance flows through international efforts into a more sustainable direction to meet climate goals will require careful consideration of a set of drivers and enablers of the involvement of CDIs and recipient countries in coal projects, which we discuss, as well as of the role of other finance providers, including traditional MDBs.     

Climate policy and dynamic efficiency gains A case study on Norwegian CO2-taxes and technological innovation in the petroleum sector

Abstract

Against increasing scientific evidence of human-induced global warming, and prevailing uncertainties regarding the fate of the Kyoto Protocol, the use of environmental taxes has been gaining increasing popularity in the OECD region. Economists often conjecture that such instruments provide a continuous incentive for technological innovation, which is likely to be a key determinant for success or failure in climate policy, at least in the long turn. However, there is little empirical evidence available to justify claims of that kind. The objective of this paper is to provide such evidence, by assessing the impacts of Norwegian CO₂-taxes, the key instrument in Norway's climate policy, on technological innovation in upstream petroleum operations. The balance of evidence suggests that the introduction of CO₂-taxes has provided some incentive for innovation that has shifted petroleum operations in a less emission-intensive direction. That said, the pattern of technological change pertains mostly to incremental process innovations, cumulative improvements, and adaptations of technologies already available. These insights may assist policymakers when formulating policy strategies and selecting instruments for climate change mitigation.     

Analysing preferences towards economic incentives in combating climate change: a comparative analysis of US states

In contrast to the federal government, some US states have taken an aggressive approach to curbing climate change. They use a variety of policy instruments to reduce greenhouse gases. These instruments can be categorized into two broad categories: economic incentives and command-and-control regulation. While the use of economic incentives has, on average, increased, some states employ them more than others. This article compares the propensity of different US states to employ economic incentives in the area of climate change. For this purpose, it analyses and tests four models: (i) a needs/responsiveness model, (ii) an interest group influence model, (iii) an innovation-and-diffusion model, and (iv) a combined model. Interestingly, this article finds that economic incentives are pushed out of the political agenda when states are confronted with a more severe problem in terms of carbon emissions and dependence on conventional energy. This article also finds support for the traditional, antagonistic view of ‘industry versus environmentalists’: electric utility companies tend to oppose economic incentives, while environmentalists and renewable energy producers tend to support them.     

Cap setting and allowance allocation in China's emissions trading pilot programmes: special issues and innovative solutions

Seven emissions trading scheme (ETS) pilots have been established in China. They have introduced some unique methods to set emissions caps and allocate allowances, different from textbook models and their counterparts in the EU, California, and many other regions. This article provides a detailed introduction to the methods for cap setting and allowance allocation adopted by the pilots, and presents detailed comparisons of these methods. In terms of cap setting, the pilots adopt flexible caps that can be adjusted where necessary, which primarily depends on the outcomes of the bottom-up approach, namely aggregating the allowances allocated to participants. As for allowance allocation, the pilots not only adopt such methods as grandfathering and benchmarking, which are also widely applied in other existing schemes, but also some special methods that require ex post adjustment, such as those based on enterprises’ historical emissions intensity (including both physical quantity and added-value intensity) and current production/output. The factors influencing the design are further analysed, including the impacts of theory and experience from foreign systems, concerns about economic development, traditions regarding intensity targets and policy, constraints from data availability and preparation time, tight regulation of the electricity and heat generation sector, and concerns regarding price stability. The practice of pilots presents an improvement opportunity and a challenge for China to further balance the theoretical and practical requirements in ETS design in establishing its national system.

Policy relevance

China is piloting emissions trading in seven regions, as part of efforts to try to rely more on market-based instruments to achieve GHG emissions control targets. All seven pilots have been confronted with special issues in the design process when compared with existing foreign schemes. This article analyses in depth the special issues related to cap setting and allowance allocation and the approaches adopted to address these issues. Flexible cap setting through a bottom-up approach and different types of allocation methods with or without ex post adjustment are adopted in the pilots. The flexible and innovative approaches the pilots have developed could provide useful experience for designing the nationwide ETS in China and promoting emissions trading policy in other parts of the world.     

中国省域电力部门CO2排放计算方法研究

提出一种基于各省电力消费详细来源的消费端排放计算方法,该方法使用不同来源电力的特征化排放因子估算调入电力隐含排放。对2005年和2010年各省电力部门CO₂排放量进行估算,并与生产端方法估算结果进行对比分析。结果表明：使用消费端方法计算后电力净调出省排放量下降,2010年内蒙古两种方法计算结果差值高达1.09亿t,该差值相当于陕西发电排放或加拿大发电和供热总排放;相反,使用消费端方法计算后电力净调入省排放量上升,2010年河北排放量上升0.74亿t,北京上升0.60亿t,北京两种方法计算结果相差幅度高达320%。     

The impact of shale gas on the costs of climate policy

The use of shale gas is commonly considered as a low-cost option for meeting ambitious climate policy targets. This article explores global and country-specific effects of increasing global shale gas exploitation on the energy markets, on greenhouse gas emissions, and on mitigation costs. The global techno-economic partial equilibrium model POLES (Prospective Outlook on Long-term Energy Systems) is employed to compare policies which limit global warming to 2°C and baseline scenarios when the availability of shale gas is either high or low. According to the simulation results, a high availability of shale gas has rather small effects on the costs of meeting climate targets in the medium and long term. In the long term, a higher availability of shale gas increases baseline emissions of greenhouse gases for most countries and for the world, and leads to higher compliance costs for most, but not all, countries. Allowing for global trading of emission certificates does not alter these general results. In sum, these findings cast doubt on shale gas’s potential as a low-cost option for meeting ambitious global climate targets.

POLICY RELEVANCE

Many countries with a large shale gas resource base consider the expansion of local shale gas extraction as an option to reduce their GHG emissions. The findings in this article imply that a higher availability of shale gas in these countries might actually increase emissions and mitigation costs for these countries and also for the world. An increase in shale gas extraction may spur a switch from coal to gas electricity generation, thus lowering emissions. At the global level and for many countries, though, this effect is more than offset by a crowding out of renewable and nuclear energy carriers, and by lower energy prices, leading to higher emissions and higher mitigation costs in turn. These findings would warrant a re-evaluation of the climate strategy in most countries relying on the exploitation of shale gas to meet their climate targets.     

Reducing fugitive methane emissions from the North American oil and gas sector: a proposed science-policy framework

The shale gas boom in the United States spurred a shift in electricity generation from coal to natural gas. Natural gas combined cycle units emit half of the CO₂ to produce the same energy as a coal unit; therefore, the market trend is credited for a reduction in GHG emissions from the US power sector. However, methane that escapes the natural gas supply chain may undercut these relative climate benefits. In 2016, Canada, the United States and Mexico pledged to reduce methane emissions from the oil and natural gas sector 40–45% from 2012 levels by 2025. This article reviews the science-policy landscape of methane measurement and mitigation relevant for meeting this pledge, including changes in US policy following the 2016 presidential election. Considerable policy incoherence exists in all three countries. Reliable inventories remain elusive; despite government and private sector research efforts, the magnitude of methane emissions remains in dispute. Meanwhile, mitigation efforts vary significantly. A framework that integrates science and policy would enable actors to more effectively inform, leverage and pursue advances in methane measurement and mitigation. The framework is applied to North America, but could apply to other geographic contexts.

Key policy insights

• The oil and gas sector’s contribution to atmospheric methane concentrations is becoming an increasingly prominent issue in climate policy.

• Efforts to measure and control fugitive methane emissions do not presently proceed within a coherent framework that integrates science and policy.

• In 2016, the governments of Canada, Mexico and the United States pledged to reduce methane emissions from the oil and natural gas sector 40–45% from 2012 levels by 2025.

• The 2016 presidential election in the United States has halted American progress at the federal level, suggesting a heavier reliance on industry and subnational efforts in that country.

• Collectively or individually, the countries, individual agencies, or private stakeholders could use the proposed North American Methane Reduction framework to direct research, enhance monitoring and evaluate mitigation efforts, and improve the chances that continental methane reduction targets will be achieved.

     

Shaping climate policy in the housing sector in northern Chinese cities

What are relevant urban development investment strategies for improving building energy efficiency (BEE) and decarbonizing the urban district heating supply in rapidly urbanizing China? Different trajectories of BEE and energy supply technologies are compared in the urban context in a northern Chinese city. Vigorous improvement of BEE will significantly enhance the prospective financial capacity to facilitate deployment of backstop technologies (e.g. carbon capture and storage) in order to decarbonize the energy supply and achieve the long-term targets of low-carbon buildings. Carbon finance instruments should be used to facilitate public policy to accompany the necessary transition in the urban development process. The government-run efficiency procurement scheme will overcome the problem of insufficient incentive and high transaction costs associated with individual Clean Development Mechanism projects. Appropriate investment strategies (allocation of financial resources over the time frame) will allow local governments to harness the large potentials of carbon emissions mitigation while minimizing the risk of long-term technical lock-in in the built environment in Chinese cities.     

How to achieve the 2030 CO2 emission-reduction targets for China's industrial sector: Retrospective decomposition and prospective trajectories

The Chinese government actively follows the low-carbon development pattern and has set the definite targets of reducing carbon emissions by 2030. The industrial sector plays a significant role in China's economic growth and CO₂ emissions. This is the first study to present a specific investigation on the retrospective decomposition (1993–2014) and prospective trajectories (2015–2035) of China's industrial CO₂ emission intensity (ICEI) and industrial CO₂ emissions (ICE), aiming at China Industrial Green Development Plan 2016–2020 targets and China's 2030 CO₂ emission-reduction targets. We introduce process carbon intensity, investment and R&D factors into the decomposition model and make a combination of dynamic Monte Carlo simulation and scenario analysis to identify whether and how the targets would be realized from a sector-specific perspective. The results indicate that investment intensity is the primary driver for the increase in ICEI, while R&D intensity and energy intensity are the leading contributors to the reduction in ICEI. Under existing policies, it is very possible for the industrial sector to achieve the 2020 and 2030 intensity-reduction targets. However, the realization of 2030 emission-peak target has some uncertainties and needs extra efforts in efficiency improvement and structural adjustment. All the five scenarios would achieve the 2020 and 2030 intensity-reduction targets, except Scenario N4 for China Industrial Green Development Plan 2016–2020 target. Nonetheless, only three scenarios would realize the 2030 emission-peak target. With strong efficiency improvement and structural adjustment, ICE would hit the peak in 2025. In contrast, with high/low efficiency improvement and weak structural adjustment, ICE would fail to reach the peak before 2035. Both ICEI and ICE have substantial mitigation potentials with the enhancement of efficiency improvement and structural adjustment. Finally, we suggest that the Chinese government should raise the baseline requirements of efficiency improvement and structural adjustment for the industrial sector to achieve China’s 2030 targets.     

The effectiveness of the EU Emissions Trading Scheme

How effective is the EU Emissions Trading Scheme (EU ETS) in promoting emissions reduction for compliance with the Kyoto Protocol commitment? A theoretical benchmark is determined in order to assess the stringency of the ETS cap and to evaluate whether emissions allowances have been over-allocated. This analysis clarifies how the emissions reduction effort has been divided between ETS and non-ETS sectors, highlighting the extent to which Member States effectively rely on the ETS to comply with their Kyoto commitments. Finally, inefficiencies relating to the over-allocation of allowances are analysed; namely cross-subsidization from non-ETS to ETS sectors, national subsidies to the ETS sectors, and distortion of competition.     

中国公众CO2减排的支付意愿：来自4个省市的案例

利用非市场价值评估的方法——条件价值法,通过估算公众对CO₂减排政策的支付意愿,评估中国减缓气候变化政策的价值。利用从北京、上海、山东、福建4个省市收集的1653份有效调查问卷,建立支付意愿模型。结果表明,绝大部分参与者对CO₂减排政策持明显的支持态度,平均每人每年愿意支付201.86元人民币以支持减排行动。其中,北京地区的参与者CO₂减排的支付意愿最高,其次为福建和山东,上海参与者的支付意愿最低。模型显示,年轻、男性和中共党员参与者愿意支付较高的额度支持CO₂减排行动,收入水平高、对目前的生活状况满意、对气候变化问题有较好理解的参与者支付意愿也高。这一研究的政策启示是：中国低碳发展需要将公众对气候政策的支持意愿转化为切实的低碳行动,在设计碳税等减排机制时还要关注不同地区和收入群体在支付意愿和能力上的差异。     

Reducing wind power curtailment in China: comparing the roles of coal power flexibility and improved dispatch

Renewable energy curtailment is a critical issue in China, impeding the country’s transition to clean energy and its ability to meet its climate goals. This paper analyzes the impacts of more flexible coal-fired power generation and improved power dispatch towards reducing wind power curtailment. A unit commitment model for power dispatch is used to conduct the analysis, with different scenarios demonstrating the relative impacts of more flexible coal-fired generation and improved power dispatch. Overall, while we find both options are effective in reducing wind power curtailment, we find that improved power dispatch is more effective: (1) the effect of ramping down coal-fired generators to reduce wind power curtailment lessens as the minimum output of coal-fired generation is decreased; and (2) as a result, at higher wind capacity levels, wind curtailment is much more significantly reduced with improved power dispatch than with decreased minimum output of coal-fired generation.

Key policy insights

• China should emphasize both coal power flexibility and dispatch in its policies to minimize renewable power curtailment and promote clean energy transition.

• China should accelerate the process of implementing spot market and marginal cost-based economic dispatch, while making incremental improvements to the existing equal share dispatch in places not ready for spot market.

• A key step in improving of dispatch is incorporating renewable power forecasts into the unit commitment process and updating the daily unit commitment based on the latest forecast result.

• China should expand the coal power flexibility retrofit programme and promote the further development of the ancillary service market to encourage more flexibility from coal-fired generation.

     

上海城市二氧化碳排放空间特征

构建上海1 km CO₂排放网格,分析市域（UB1）、市辖区（UB2）、建成区（UB3）和城区（UB4）4个城市范围的CO₂排放特征。上海市域CO2排放空间格局是以中心城区为核心,排放水平向外递减,形成了3个梯度。空间自相关分析表明,排放在空间上存在显著的集聚效应,部分地区高强度的经济活动和能源活动对周边区域的排放有显著影响。UB4是上海城市的最佳表征,2007年UB4内CO₂排放达到1.89亿t,人均排放12.04 t;UB4排放占UB1排放的75.40%,UB1人均排放比UB4人均排放高12%。上海城市化和工业化在空间上的高度重合,导致高排放源集聚于UB4内,形成UB4的高排放特征。个别网格的排放量已经占到区域或者城市总排放量的10%～20%;前10高和前100高排放网格,其累积排放总量分别占据了3个城市范围（UB1、UB3和UB4）总排放量的60%和80%以上。     

Analysing the interaction between emission trading and renewable electricity support in TIMES

As the number of instruments applied in the area of energy and climate policy is rising, the issue of policy interaction needs to be explored further. This article analyses the interdependencies between the EU Emissions Trading Scheme (EU ETS) and the German feed-in tariffs (FITs) for renewable electricity in a quantitative manner using a bottom-up energy system model. Flexible modelling approaches are presented for both instruments, with which all impacts on the energy system can be evaluated endogenously. It is shown that national climate policy measures can have an effect on the supranational emissions trading system by increasing emission reduction in the German electricity sector by up to 79 MtCO₂ in 2030. As a result, emission certificate prices decline by between 1.9 €/tCO₂ and 6.1 €/tCO₂ and the burden sharing between participating countries changes, but no additional emission reduction is achieved at the European level. This also implies, however, that the cost efficiency of such a cap-and-trade system is distorted, with additional costs of the FIT system of up to €320 billion compared with lower costs for ETS emission certificates of between €44 billion and €57 billion (cumulated over the period 2013–2020).

Policy relevance

In order to fulfil ambitious emission reduction targets a large variety of climate policy instruments are being implemented in Europe. While some, like the EU ETS, directly address CO₂ emissions, others aim to promote specific low-carbon technologies. The quantitative analysis of the interactions between the EU ETS and the German FIT scheme for renewable sources in electricity generation presented in this article helps to understand the importance of such interaction effects. Even though justifications can be found for the implementation of both types of instrument, the impact of the widespread use of support mechanisms for renewable electricity in Europe needs to be taken into account when fixing the reduction targets for the EU ETS in order to ensure a credible long-term investment signal.