The Interaction of Emissions Trading and Renewable Energy Promotion
Dresden University of Technology Working Paper No. WP-EGW-05
18 Pages Posted: 19 Dec 2008
Date Written: December 17, 2008
Given the ambitious goal of the European Union to achieve CO2 emission reduction, support to renewable energies, and increased energy efficiency a portfolio of different policies is going to be implemented or is already in place in the member states. These instruments have at least partly overlapping objectives; thus, a high degree of interaction is to be expected. In this paper we analyze how the EU ETS and renewable support mechanisms influence one another. We apply a static open economy computable general equilibrium (CGE) model of Germany incorporating different conventional and renewable generation technologies. We find that in case of an ETS with a green certificate trading scheme or a feed-in system the price for carbon drops to zero due to the high share of CO2-neutral renewable generation. Furthermore, the welfare reducing effect of an additional renewable support mechanism is rather low for both schemes.
Keywords: ETS, renewable support, Germany, CGE
JEL Classification: D58, L94, Q42, Q52
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