Energy markets,capital inertia and economic instrument impacts

Despite the importance of emissions trading and energy taxes to the EU and national climate strategies, limited research exists on their impact on emissions from the perspective of industry sectors targeted by economic instruments. This article contributes to redressing this deficit by critically analysing whether economic instruments applied within the UK provide sufficiently strong price incentives to overcome barriers to investment in energy-intensive sectors created by the capital and finance costs of replacing ‘legacy’ infrastructure and fluctuating base energy prices. Results from a survey of 189 companies from the cement, aluminium and chemicals sectors and 23 interviews with sector associations and businesses from these and other energy-intensive industries indicate that economic instruments have raised awareness of energy efficiency but have had a minimal impact on investment decisions. EU-wide economic instruments such as the EU emissions trading scheme have yet to be fully tested but may encounter similar difficulties. On this basis, we argue that economic instruments may need to be complemented by more interventionist programmes focusing on large-scale investment in energy modernization and we also discuss how economic instruments can contribute to this agenda.