Decarbonizing the European Power Sector: Policy Approaches in the Light of Current Trends and Long Term Trajectories
25 Pages Posted: 25 Nov 2011
Date Written: November 15, 2011
European climate policy is gradually shifting towards a long-term perspective. The electricity sector has a crucial role to play in the long-term decarbonization of the EU economy. It makes up a significant share of EU emissions and can contribute to the reduction of emissions in other sectors, particularly buildings and transport. The EU 2008 Climate and Energy Package (CEP) took a significant step towards a low-carbon future, initiating a very ambitious program of renewables expansion and strengthening the ETS. However, the omissions and internal inconsistencies of the CEP are becoming more and more evident. This relates in particular to the absence of long-term, comprehensive signals for decarbonization and the imbalance between the ETS, energy efficiency and renewables objectives. This risks delaying and distorting investment in low-carbon infrastructure and ideas, raising the ultimate cost of climate policy.In view of the inertias within the electricity sector, it is imperative for the EU to set a long-term signal for the decarbonization of the sector by setting 2030 objectives for the ETS and complementary policies. The EU’s decarbonization strategy needs to be robust against future uncertainties; strengthening a technology neutral instrument like the ETS can provide a key part of a comprehensive signal to develop the full range of decarbonization options. The instrument imbalance also needs to be addressed. Demand side policies should be the point of departure for supply side interventions: ETS caps should be set so as to achieve carbon scarcity after energy efficiency and RES objectives have been taken into account. A short-term adjustment of scarcity in the ETS may create some incentives for low-carbon investment. However, it would not address the fundamental concern, namely the lack of policy information regarding the post 2020 environment in which these investment will amortize.
Keywords: European climate policy, electricity sector, European emissions trading scheme, renewables policy, 2050 decarbonization
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