Competition and environmental policies in an electricity sector

We study the impact of competition and environmental policy (feed-in tariff vs. the EU ETS) on investment, CO₂ emissions and welfare in an electricity sector. We consider different market structures (a planner who maximises social welfare vs. duopoly) and two types of consumers (those whose behaviour depends on the weather vs. those whose behaviour does not). The demand specification is innovative and takes incompressible consumption into account.Given the costs and demand functions, we find that competition can increase CO₂ emissions, as is highlighted by Mansur (2007). In duopoly, the EU ETS seems to be the only efficient policy for reducing CO₂ emissions but also to increase the share of production based on renewable energy sources. The retained feed-in tariff policy seems to be the most expensive policy in terms of “social welfare”. Even if this policy seems to increase “social welfare”, feed-in tariffs increase the CSPE, which is paid for by consumers in the form of higher electricity prices and only benefits new entrants. It is also less effective in terms of emission reduction.     

Policy analysis for energy efficiency in the built environment in Spain

Energy efficiency is considered one of the most cost effective ways to enhance security of energy supply and reduce greenhouse gas emissions. According to Europe's Energy Efficiency Plan, the biggest energy savings potential in the EU lies in the built environment. However, the many barriers to energy efficiency have prevented the implementation of the existing potential so far. This paper evaluates the existing policy instruments aimed at energy efficiency in buildings in Spain as laid down in the 2nd National Energy Efficiency Action Plan (NEEAP). The results show that the current policy package is insufficient to yield the existing energy savings potential in this sector. As much of the savings potential can be found in existing buildings and realization of this potential very much relies on voluntary action, the renovation sector is in need of an appropriate financial framework that mobilizes sufficient public and private financial resources, and transparent and efficient mechanisms to ensure the return on investment and payments from those who benefit from the renovation. Such financial framework needs to be supported by a regulatory framework that is tuned to existing buildings and an organizational framework that effectively connects the different policy layers in Spain.     

An emerging equilibrium in the EU emissions trading scheme

The European Union's Emissions Trading Scheme (ETS) is the key policy instrument of the European Commission's Climate Change Program aimed at reducing greenhouse gas emissions to eight percent below 1990 levels by 2012. A critically important element of the EU ETS is the establishment of a market determined price for EU allowances. This article examines the extent to which several theoretically founded factors including, economic growth, energy prices and weather conditions determine the expected prices of the European Union CO₂ allowances during the 2005 through to the 2009 period. The novel aspect of our study is that we examine heavily traded futures instruments that have an expiry date in Phase 2 of the EU ETS. Our study adopts both static and recursive versions of the Johansen multivariate cointegration likelihood ratio test as well as a variation on this test with a view to controlling for time varying volatility effects. Our results are indicative of a new pricing regime emerging in Phase 2 and point to a maturing market driven by the fundamentals. These results are valuable both for traders of EU allowances and for those policy makers seeking to improve the design of the European Union ETS.     

Climate policies for road transport revisited (II): Closing the policy gap with cap-and-trade

Current policies in the road transport sector fail to deliver consistent and efficient incentives for greenhouse gas abatement (see companion article by Creutzig et al., in press). Market-based instruments such as cap-and-trade systems close this policy gap and complement traditional policies that are required where specific market failures arise. Even in presence of strong existing non-market policies, cap-and-trade delivers additional abatement and efficiency by incentivizing demand side abatement options. This paper analyzes generic design options and economic impacts of including the European road transport sector into the EU ETS. Suitable points of regulation are up- and midstream in the fuel chain to ensure effectiveness (cover all emissions and avoid double-counting), efficiency (incentivize all abatement options) and low transaction costs. Based on year 2020 marginal abatement cost curves from different models and current EU climate policy objectives we show that in contrast to conventional wisdom, road transport inclusion would not change the EU ETS allowance price. Hence, industrial carbon leakage induced by adding road transport to the EU ETS may be less important than previously estimated.     

Evaluating the EU ETS impacts on profits,investments and prices of the Italian electricity market

Climate change is a global issue, but actions to mitigate its development are regional. Europe has taken the leadership in the carbon emission policy by introducing the Emissions Trading Scheme (EU ETS), formerly regulated by Directive 2003/87/EC and since 2013 by Directive 2009/29/EC. This new Directive imposes a full auctioning system for allocating CO₂ allowances to the power sector and encourages the use of renewable energy sources.We investigate the economic impacts of the EU ETS on the Italian electricity market using a power generation expansion model. We adopt a technological representation of the energy market that also accounts for power exchanges with foreign countries and we assume that generators operate in different zones connected by interconnections with limited capacity. We study both an oligopolistic and a perfectly competitive behavior of Italian generators and we compare the corresponding outcomes under different EU ETS scenarios. Our analysis shows that, in perfect competition, generators generally invest more than in an oligopolistic framework, but in both market configurations, investments in Italy are mainly concentrated in fossil-fired plants, especially in 2020. This happens also when incentives are given to renewables.The developed models are implemented as complementarity problems and solved in GAMS using the PATH solver.     

The potential of WHR/batch and cullet preheating for energy efficiency in the EU ETS glass industry and the related energy incentives

The European Emissions Trading Scheme (EU ETS) covers approximately 45% of European greenhouse gases (GHGs), 11,000 stationary installations as well as aircraft operators. The EU ETS particularly affects the energy-intensive industries while it imposes a significant risk of “carbon leakage,” i.e., the risk of EU industry departing to countries with weaker restraints on GHG emissions. The EU glass industry, being capital intensive and also requiring long investment cycles, is the world’s largest glass producer with a market share close to one third of global production. Therefore, it is of significant importance to view the position of the EU ETS glass industry in terms of energy conservation possibilities. The present paper utilizes a vertical approach to provide information on both ETS market evolution and specific technical information to support technological innovation to the glass industry. EU ETS glass industry is analyzed regarding the balance between allocated European Union emission allowances (EUAs), verified CO₂ emissions, and potential shortfall in allowances so as to determine the situation of glass industries and the extent of urge for energy-saving activities towards the strengthening of their position within the requirements of the EU ETS phase III. The replication potential of waste heat recovery (WHR) through batch preheating is specifically addressed since it is considered a promising technology according to the latest Best Available Techniques (BAT) reference document for the glass industry under Directive IED 2010/75/EU. A case study for a container glass furnace based on simulation results is presented investigating the impact of different operating and design configurations on specific energy consumption and CO₂ emissions.     

An exploration of possible design options for a binding energy savings target in Europe

As Europe is not on track in meeting its 2020 energy savings target, there has been quite some debate to make the energy savings target binding instead of indicative. Although the final draft text of the Energy Efficiency Directive left the option of a binding target explicitly open for the period beyond 2014, this statement has watered down in the adopted Directive: If still not on track mid-2014, the European Commission will propose “further measures.” In this paper, we argue that a binding energy savings target could be the first EU legal initiative to look beyond 2020 serving as a beacon for other policies such as for renewables and greenhouse gases that need redefinition after 2020. We therefore explore four possible design options of a binding savings target and assess their feasibility. We conclude that a binding target at Member State level (opposed to an EU-wide target like for the EU Emission Trading System (ETS)) is the most feasible. A binding target at Member State level would ensure political accountability and commitment to deliver results while providing flexibility to choose and apply the most suitable tools to achieve the target. It could provide a framework to guide ambitious and coherent implementation of EU energy efficiency policies, as well as the strengthening of national policies. Furthermore, binding targets at Member State level will make Member States take an ambitious position in Brussels when new energy or CO₂ performance standards for appliances and transport modes are to be set. A Member State binding target applied to end-users (excluding ETS companies) is a design option that covers the vast majority of the cost-effective energy savings potential, maintains the flexibility for ETS companies, and supports the most cost-effective achievement of a greater share of renewables.     

Markets for energy efficiency: Exploring the implications of an EU-wide ‘Tradable White Certificate’ scheme

Recent developments in European energy policy reveal an increasing interest in implementing the so-called ‘Tradable White Certificate’ (TWC) schemes to improve energy efficiency. Based on three evaluation criteria (cost-effectiveness, environmental effectiveness and distributional equity) this paper analyses the implications of implementing a European-wide TWC scheme targeting the household and commercial sectors. Using a bottom-up model, quantitative results show significant cost-effective potentials for improvements (ca. 1400 TWh in cumulative energy savings by 2020), with the household sector, gas and space heating representing most of the TWC supply in terms of eligible sector, fuel and energy service demand, respectively. If a single market price of negative externalities is considered, a societal cost-effective potential of energy savings above 30% (compared to the baseline) is observed. In environmental terms, the resulting greenhouse gas emission reductions are around 200 Mt CO_2-eq by 2010, representing nearly 60% of the EU-Kyoto-target. From the qualitative perspective, several embedded ancillary benefits are identified (e.g. employment generation, improved comfort level, reduced ‘fuel poverty’, security of energy supply). Whereas an EU-wide TWC increases liquidity and reduces the risks of market power, autarky compliance strategies may be expected in order to capture co-benefits nationally. Cross subsidies could occur due to investment recovery mechanisms and there is a risk that effects may be regressive for low-income households. Assumptions undertaken by the modelling approach strongly indicate that high effectiveness of other policy instruments is needed for an EU-wide TWC scheme to be cost-effective.     

The policy instruments of European front-runners: effective for saving energy in existing dwellings?

Existing dwellings receive frequent attention in climate change policy given the wealth of cost-effective, but un-exploited, energy-saving potential within their walls. Policy attention also recognises the need for instruments that can navigate around barriers and maximise opportunities to achieve deep carbon reductions. However, there is a lack of evidence and knowledge about the instruments that can boast of success. In response to this knowledge gap, the instruments that form the main policy response to reduce energy consumed for space and water heating in existing dwellings in several front-runner European countries are assessed. Aims are to include, and to go beyond, an understanding of effectiveness based on reported reductions in CO₂ emissions and/or monetary savings on energy bills. Effectiveness is also judged on the basis of how instruments reflect policy instrument and energy policy concepts drawn from literature. Results show that the instruments that define action of front-runners differ significantly. Front-runners fail to reconcile all the identified concepts in their main instruments but some feature strongly. In this regard, selected countries established their main instruments over two decades ago, reflecting the concept of long-term instrument development and support. However, few front-runners adequately monitor and evaluate instruments to illuminate cause and effect. Front-runners struggle to diversify their core instrument approaches to capture ‘hard to reach households’ such as the private rental sector and lower-income households. The divergence in the instruments that form the main policy response of front-runners allows for the characteristics of a range of instruments to be analysed including regulations, information tools, taxes and incentives.     

Sectoral and regional impacts of the European carbon market in Portugal

Across Europe, CO₂ emission allowances represent one of the main policy instruments to comply with the goals of the Kyoto Protocol. In this paper we use microdata to address two issues regarding the impact of the European Carbon Market (EU ETS). First, we analyze the sectoral effects of the EU ETS in Portugal. The goal is to study the distributive consequences of imbalances, with the novelty of taking into account firm financial data to put values into context. We show that a large majority of installations in most sectors had surpluses and the opportunity to raise remarkable revenues in some cases. We also look at the regional impact, since the pre-existing specialization of different regions in the production of different goods and services might lead to an uneven economic impact of the allowance market. In particular, Portuguese data indicate a distribution of revenue from low income to high income regions, or rather, between installations located in those regions. We focus on the first phase of the EU ETS, using data for each one of the 244 Portuguese installations in the market as well as financial data for 80% of these installations, although we also present data for 2008 and 2009.     

Implications of the EU Emissions Trading System for the South-East Europe Regional Electricity Market

As part of its climate policy, the European Union (EU) aims to reduce greenhouse gas (GHG) emissions levels by 20% by the year 2020 compared to 1990 levels. Although the EU is projected to reach this goal, its achievement of objectives under its Emissions Trading System (ETS) may be delayed by carbon leakage, which is defined as a situation in which the reduction in emissions in the ETS region is partially offset by an increase in carbon emissions in the non-ETS regions. We study the interaction between emissions and hydropower availability in order to estimate the magnitude of carbon leakage in the South-East Europe Regional Electricity Market (SEE-REM) via a bottom-up partial equilibrium framework. We find that 6.3% to 40.5% of the emissions reduction achieved in the ETS part of SEE-REM could be leaked to the non-ETS part depending on the price of allowances. Somewhat surprisingly, greater hydropower availability may increase emissions in the ETS part of SEE-REM. However, carbon leakage might be limited by demand response to higher electricity prices in the non-ETS area of SEE-REM. Such carbon leakage can affect both the competitiveness of producers in ETS member countries on the periphery of the ETS and the achievement of EU targets for CO₂ emissions reduction. Meanwhile, higher non-ETS electricity prices imply that the current policy can have undesirable outcomes for consumers in non-ETS countries, while non-ETS producers would experience an increase in their profits due to higher power prices as well as exports. The presence of carbon leakage in SEE-REM suggests that current EU policy might become more effective when it is expanded to cover more countries in the future.     

Impact of energy policy instruments on the estimated level of underlying energy efficiency in the EU residential sector

The promotion of energy efficiency is seen as one of the top priorities of EU energy policy (EC, 2010). In order to design and implement effective energy policy instruments, it is necessary to have information on energy demand price and income elasticities in addition to sound indicators of energy efficiency. This research combines the approaches taken in energy demand modelling and frontier analysis in order to econometrically estimate the level of energy efficiency for the residential sector in the EU-27 member states for the period 1996 to 2009. The estimates for the energy efficiency confirm that the EU residential sector indeed holds a relatively high potential for energy savings from reduced inefficiency. Therefore, despite the common objective to decrease ‘wasteful’ energy consumption, considerable variation in energy efficiency between the EU member states is established. Furthermore, an attempt is made to evaluate the impact of energy-efficiency measures undertaken in the EU residential sector by introducing an additional set of variables into the model and the results suggest that financial incentives and energy performance standards play an important role in promoting energy efficiency improvements, whereas informative measures do not have a significant impact.     

Energy potential from residual biomass towards meeting the EU renewable energy and climate targets. The Italian case

The biomass sector has a strategic role in energy renewables policy, according to the National Renewable Energy Action Plans (NREAPs), elaborated in compliance with the Directive 2009/28/EC. Planning a suitable use of biomass for energy purposes call for the clear definition of the biomass potential, that has to be periodically updated by inventories for all EU countries.The aim of this paper has been the assessment of the available residual biomass, particularly lignocellulosic, in the Italian territory, to evaluate the potential for bioenergy, particularly for electricity and heat generation. The greenhouse gas savings according to the European target and indicators have been estimated on the national scale. Particularly, the total final energy which could be generated from 22,208,455 t/y of residual biomass assessed in Italy, is equal to 4.57 Mtoe, nearly 2.7% of the gross Italian energy consumption in 2013 and the total savings of GHG emissions coming from this bioenergy generation, are close to 52 Mt CO₂eq for the entire Italian territory per year. The conclusions underline that an appropriate bioenergy policy can help decarbonise the economy, enhance the reliability of the energy supply and additionally it can revitalise rural areas.     

Cost‐effectiveness analysis of energy efficiency measures in the Swiss chemical and pharmaceutical industry

Energy efficiency improvement is an effective way of reducing energy demand and CO₂ emissions. Although the overall final energy savings potential in chemical industry has been estimated in a few countries, energy efficiency potentials by concrete measures applicable in the sector have been scarcely explored and their associated costs are hardly analyzed. In Switzerland, the production of chemicals and pharmaceuticals exceeds all other industrial sectors in terms of energy use and CO₂ emissions, and it accounted for 22% of the total industry's overall final energy demand and 25% of the CO₂ emissions related to non‐renewable energy sources in 2016. In this study, the economic potentials for energy efficiency improvement and CO₂ emissions reduction in the Swiss chemical and pharmaceutical industry are investigated in the form of energy efficiency cost curves. The economic potential for final energy savings and CO₂ abatement based on energy‐relevant investments is estimated at 15% and 22% of the sector's final energy use and fossil fuel‐related CO₂ emissions in 2016, respectively. Measures related to process heat integration are expected to play a key role for final energy savings. The economic electricity savings potential by improving motor systems is estimated at 15% of the electricity demand by these systems in 2016. The size of economic potential of energy efficiency improvement across the sector decreases from 15% to 11% for 0.5 times lower final energy prices while the size increases insignificantly for 1.5 times higher final energy prices. The additional power generation potential based on Combined Heat and Power plants is estimated at 14 MW for 2016. This study is a contribution to the so far limited international literature on economic energy efficiency measures applicable in this heterogeneous sector and can support policy development. The results for specific costs of energy efficiency measures can also be adapted to other parts of the world by making suitable adjustments which in return may provide useful insights for decision makers to invest in economically viable clean energy solutions.     

One size fits all? Policy instruments should fit the segments of target groups

In order to meet the Kyoto CO₂ reduction targets, technical innovations in the field of energy-efficiency must diffuse more rapidly into a larger market. However, markets develop gradually, especially if innovations are involved. Diffusion starts with the early market (innovators and early adopters), followed by the mainstream market (the early and late majority), and ends with the laggards. The actors in these markets differ in their willingness to adopt innovations; the early market actors have a visionary attitude, and the mainstream market actors are more pragmatic. In order to choose policy instruments that will most effectively influence these two markets within the target group of housing association, we addressed the following two questions. (1) What are the differences between the early and mainstream market actors from a behavioural-change point of view? (2) In what way do existing policy instruments differ in influencing the behaviour of these actors? We analyzed early market and mainstream decision-making behaviours, and how the active ingredients in policy instruments specifically target the characteristics of the two markets. Mainstream instruments should intervene as early as possible in the decision-making process and emphasize communication about advantages such as comfort and quality in addition to money and energy savings. Furthermore, they should present energy conservation as a solution to an actual problem. Instead of bureaucratic subsidy systems for the mainstream, the motto should be “cash on the barrel-head”. Early market actors are highly internally motivated, implying that early market interventions have to be challenging and facilitating.     

Energy supplier obligations and white certificate schemes: Comparative analysis of experiences in the European Union

A number of Member States of the European Union (EU) have introduced market-based policy portfolios based on quantified energy savings obligations on energy distributors or suppliers, possibly coupled with certification of project-based energy savings (via white certificates), and the option to trade the certificates or obligations. The paper provides an up-to-date review and analysis of results to date of white certificate schemes in the EU.     

What will China's carbon emission trading market affect with only electricity sector involvement? A CGE based study

On December 29, 2017, China's Carbon Trading Scheme (ETS) was officially launched, and it may be the largest emission trading platform in the world. This paper establishes 5 counter-measured scenarios based on the recently launched China's national ETS market and constructs a dynamic recursive Computable General Equilibrium model to study the impact of national ETS on the economy, energy, and environment. We find that the national ETS will have a negative impact on GDP by 0.19%–1.44%. The national ETS can significantly increase the price of electricity, however, the increase in the prices of other commodities will be much lower than that of electricity. As long as the mechanism of the ETS market remains unchanged, emission reduction per year will increase linearly. Economic output and CO₂ emission are sensitive to Annual Decline factor (ADF). This paper argues that China's national ETS market is an effective tool to reduce CO₂ emission, and we suggest that ADF could be 0.5% when allocating carbon allowance for the electricity sector. This could balance economic output and CO₂ reduction. Also, it is easy to achieve the goal of “double control” (total amount and intensity) in China.     

Energy behaviours as promoters of energy efficiency: A 21st century review

Energy behaviours represent a significant untapped potential for the increase of end-use energy efficiency in buildings. Although energy behaviours are a major determinant of energy use in buildings, energy savings potential due to behaviour are usually neglected, albeit being referred to be as high as those from technological solutions.This paper presents a review of recent literature on energy behaviours in order to recognise recent trends, quantify energy behaviours potential savings, characterise energy behaviour modelling strategies and identify potential research gaps.Energy behaviour research is vast and has been essentially focused on the residential sector, striving to establish behaviour determinants and the best strategies and instruments to promote more efficient energy behaviours. Potential savings of energy behaviours are referred to reach 20%, but values differ up to 100% between experiences and additional studies to quantify behavioural savings are needed, in particular by using standard quantification techniques.Different modelling techniques have been used to model energy behaviours: qualitative approaches from the social sciences trying to interpret behaviour, here named energy behaviour frameworks; quantitative approaches from the engineering and economics that quantify energy consumption, here designated by energy models; and hybrid approaches that are considered the most relevant since they integrate multiple dimensions of energy behaviours, here referred as energy behaviour modelling.Energy behaviours have a crucial role in promoting energy efficiency, but energy behaviours characteristics and complexity create several research challenges that must be overcome so energy behaviours may be properly valorised and integrated in the energy policy context.     

Assessment of current Dutch energy transition policy instruments for the existing housing stock

This research assesses to what extent current Dutch energy transition policy instruments for the existing housing stock can fulfil local executive actors’ needs and instigate adoption of energy efficiency measures by them. This is done by studying energy policy instruments for the existing housing stock in the Netherlands and in other European countries, and by an empirical research, which analyses barriers and needs of local executive actors. We found that, despite current Dutch energy transition policy instruments for the existing housing stock seem to fulfil local executive actors’ needs to a large extent, complementary policy instruments are needed to stimulate and pressure the incumbent renovation regime. A long-term oriented financial rewarding system is needed to build up a structural market for the deployment of renewables, to increase the number of specialist jobs in the building sector, and to stimulate the development of integrated, standardized, building components. Furthermore, a long-term oriented financial rewarding system for energy efficiency investments in housing renovation projects, and a low VAT rate applied to energy efficient renovation measures, are needed. Finally, enforcement possibilities and sanctions (fines) should become an integrative part of Dutch energy certification regulation to make the certificate become part of a value chain.     

The role of policy instruments for promoting combined heat and power production with low CO2 emissions in district heating systems

Policy instruments clearly influence the choice of production technologies and fuels in large energy systems, including district heating networks. Current Swedish policy instruments aim at promoting the use of biofuel in district heating systems, and at promoting electric power generation from renewable energy sources. However, there is increasing pressure to harmonize energy policy instruments within the EU. In addition, natural gas based combined cycle technology has emerged as the technology of choice in the power generation sector in the EU. This study aims at exploring the role of policy instruments for promoting the use of low CO₂ emissions fuels in high performance combined heat and power systems in the district heating sector. The paper presents the results of a case study for a Swedish district heating network where new large size natural gas combined cycle (NGCC) combined heat and power (CHP) is being built. Given the aim of current Swedish energy policy, it is assumed that it could be of interest in the future to integrate a biofuel gasifier to the CHP plant and co‐fire the gasified biofuel in the gas turbine unit, thereby reducing usage of fossil fuel. The goals of the study are to evaluate which policy instruments promote construction of the planned NGCC CHP unit, the technical performance of an integrated biofuelled pressurized gasifier with or without dryer on plant site, and which combination of policy instruments promote integration of a biofuel gasifier to the planned CHP unit. The power plant simulation program GateCycle was used for plant performance evaluation. The results show that current Swedish energy policy instruments favour investing in the NGCC CHP unit. The corresponding cost of electricity (COE) from the NGCC CHP unit is estimated at 253 SEK MWh^?1, which is lower than the reference power price of 284 SEK MWh^?1. Investing in the NGCC CHP unit is also shown to be attractive if a CO₂ trading system is implemented. If the value of tradable emission permits (TEP) in such as system is 250 SEK tonne^?1, COE is 353 SEK MWh^?1 compared to the reference power price of 384 SEK MWh^?1. It is possible to integrate a pressurized biofuel gasifier to the NGCC CHP plant without any major re‐design of the combined cycle provided that the maximum degree of co‐firing is limited to 27–38% (energy basis) product gas, depending on the design of the gasifier system. There are many parameters that affect the economic performance of an integrated biofuel gasifier for product gas co‐firing of a NGCC CHP plant. The premium value of the co‐generated renewable electricity and the value of TEPs are very important parameters. Assuming a future CO₂ trading system with a TEP value of 250 SEK tonne^?1 and a premium value of renewable electricity of 200 SEK MWh^?1 COE from a CHP plant with an integrated biofuelled gasifier could be 336 SEK MWh^?1, which is lower than both the reference market electric power price and COE for the plant operating on natural gas alone. Copyright © 2005 John Wiley & Sons, Ltd.