Incentives for energy efficiency in the EU Emissions Trading Scheme |
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Authors: | Joachim Schleich Karoline Rogge Regina Betz |
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Affiliation: | (1) Fraunhofer Institute for Systems and Innovation Research, Karlsruhe, Germany;(2) Breslauer Strasse 48, 76139 Karlsruhe, Germany;(3) Virginia Polytechnic Institute and State University, Blacksburg, VA, USA;(4) Group for Sustainability and Technology, ETH, Zurich, Switzerland;(5) Center for Energy and Environmental Markets, School of Economics, University of New South Wales, Sydney, Australia |
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Abstract: | This paper explores the incentives for energy efficiency induced by the European Union Emissions Trading Scheme (EU ETS) for
installations in the energy and industry sectors. Our analysis of the National Allocation Plans for 27 EU Member States for
phase 2 of the EU ETS (2008–2012) suggests that the price and cost effects for improvements in carbon and energy efficiency
in the energy and industry sectors will be stronger than in phase 1 (2005–2007), but only because the European Commission
has substantially reduced the number of allowances to be allocated by the Member States. To the extent that companies from
these sectors (notably power producers) pass through the extra costs for carbon, higher prices for allowances translate into
stronger incentives for the demand-side energy efficiency. With the cuts in allocation to energy and industry sectors, these
will be forced to greater reductions; thus, the non-ET sectors like household, tertiary, and transport will have to reduce
less, which is more in line with the cost-efficient share of emission reductions. The findings also imply that domestic efficiency
improvements in the energy and industry sectors may remain limited since companies can make substantial use of credits from
the Kyoto Mechanisms. The analysis of the rules for existing installations, new projects, and closures suggests that incentives
for energy efficiency are higher in phase 2 than in phase 1 because of the increased application of benchmarking to new and
existing installations and because a lower share of allowances will be allocated for free. Nevertheless, there is still ample
scope to further improve the EU ETS so that the full potential for energy efficiency can be realized.
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Keywords: | Climate policy Emission trading Energy efficiency Innovation |
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