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Decarbonizing the EU power sector: policy approaches in the light of current trends and long-term trajectories

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  • Spencer, Thomas
  • Marcey, Celine
  • Colombier, Michel
  • Guerin, Emmanuel
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    Abstract

    ASSESSMENT European climate policy is gradually shifting towards a long-term perspec- tive. The electricity sector has a crucial role to play in the long-term decar- bonization of the EU economy. It makes up a significant share of EU emis- sions 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, initi- ating a very ambitious program of renewables expansion and strengthen- ing 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 set- ting 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 decarbon- ization 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 incen- tives for low-carbon investment. However, it would not address the funda- mental concern, namely the lack of policy information regarding the post 2020 environment in which these investment will amortize.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35009.

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    Date of creation: 15 Nov 2011
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    Handle: RePEc:pra:mprapa:35009

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    Keywords: European climate policy; 2050 decarbonization; European emissions trading scheme; renewables policy;

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    1. Valentina Bosetti & David G. Victor, 2010. "Politics and Economics of Second-Best Regulation of Greenhouse Gases: The Importance of Regulatory Credibility," Working Papers 2010.29, Fondazione Eni Enrico Mattei.
    2. Geoffrey Rothwell, 2006. "A Real Options Approach to Evaluating New Nuclear Power Plants," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 87-54.
    3. Fankhauser, Samuel & Hepburn, Cameron, 2010. "Designing carbon markets. Part I: Carbon markets in time," Energy Policy, Elsevier, vol. 38(8), pages 4363-4370, August.
    4. Neuhoff,Karsten, 2011. "Climate Policy after Copenhagen," Cambridge Books, Cambridge University Press, number 9781107008939, October.
    5. Rogge, Karoline S. & Schneider, Malte & Hoffmann, Volker H., 2011. "The innovation impact of the EU Emission Trading System -- Findings of company case studies in the German power sector," Ecological Economics, Elsevier, vol. 70(3), pages 513-523, January.
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