Energy and climate policies to 2020: the impacts of the European “20/20/20” approach

Abstract

PurposeThe purpose of this paper is to quantify the possible interactions among the three European objectives in the horizon of 2020: the reduction of 20 per cent of greenhouse gas emissions (GHG); the saving of 20 per cent of the European energy consumption; and a share of 20 per cent of renewable energies in the overall energy consumption. Particular focus is, however, placed on the influence of the CO2 emission reduction targets and on their consequences on the carbon price in 2020.Design/methodology/approachIn order to explore the interactions among the three European objectives and their induced effects, a number of scenarios are tested within a combination of two modeling tools: the POLES world energy model and ASPEN, an auxiliary model dedicated to the analysis of quota trading systems. With reasonable assumptions for the burden sharing among the member states, the energy efficiency objectives and the renewable energy targets are achieved using national quota systems in each European country (white and green certificate systems and their implicit prices), while the CO2 emission reduction is carried out within the European Emissions Trading Scheme (ETS) in line with the objective of 20 per cent emission reduction.FindingsThe paper shows, in particular, that the two quota policies (white certificates and green certificates) decrease significantly the European marginal emission reduction cost and consequently, the compliance costs for ETS participants. The high‐renewable target compliance cost could be reduced significantly if carbon price signal and energy saving policies are in place. The paper also shows that the sole carbon price signal has a limited influence for stimulating renewable energies and energy savings and thus concludes on the need for specific policies targeting these two areas.Originality/valueThis paper is a first attempt to comprehensively deal with the economic fundamentals of the 3D regulatory system proposed by the Commission for Energy and Climate and is of value in proposing a comprehensive approach of the economics of the “20/20/20” European policy.