Energy Efficiency

, Volume 2, Issue 1, pp 37–67 | Cite as

Incentives for energy efficiency in the EU Emissions Trading Scheme

Article

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.

Keywords

Climate policy Emission trading Energy efficiency Innovation 

Abbreviations

BAT

best available technology

BM

benchmark

CCGT

combined gas cycle turbines

CDM

clean development mechanism

CHP

combined heat and power

CITL

community independent transaction log

CO2e

CO2 equivalents

EC

European Commission

ET

emissions trading

EU

European Union

EUA

European Union allowance

EU ETS

EU Emissions Trading Scheme

JI

joint implementation

KM

Kyoto Mechanisms (i.e. JI, CDM)

NAP

National Allocation Plan

VET

verified emissions table

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Copyright information

© Springer Science+Business Media B.V. 2008

Authors and Affiliations

  • Joachim Schleich
    • 1
    • 2
    • 3
  • Karoline Rogge
    • 1
    • 4
  • Regina Betz
    • 5
  1. 1.Fraunhofer Institute for Systems and Innovation ResearchKarlsruheGermany
  2. 2.Breslauer Strasse 48KarlsruheGermany
  3. 3.Virginia Polytechnic Institute and State UniversityBlacksburgUSA
  4. 4.Group for Sustainability and TechnologyETHZurichSwitzerland
  5. 5.Center for Energy and Environmental Markets, School of EconomicsUniversity of New South WalesSydneyAustralia

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