The missing link: The influence of instruments and design features on the interactions between climate and renewable electricity policies

Abstract

Climate and energy targets and instruments coexist in many countries, leading to interactions. In particular, the combination of CO2 targets, the European Union (EU) emission trading scheme and promotion of electricity from renewable energy sources (RES-E) have raised significant concerns in the past, given the allegedly negative influence of RES-E support on CO2 prices. This (negative) interaction has been analysed with modeling techniques, but an assessment of the impact of specific instruments and design features on those interactions has so far been neglected. The aim of this paper is to provide an initial attempt to cover this gap. An analytical framework to discuss the impact of instruments and design features on the interactions is provided and the comparative impact of different instruments and design features on the interactions between RES-E support and CO2 mitigation instruments is evaluated. Our results show that, while negative interactions can be mitigated through coordination, adaptability depends on the choice of instruments and design features. The negative interactions are more likely under quantity-based than under price-based CO2 mitigation instruments. In contrast, they are more likely with price-based than with quantity-based RES-E support instruments. Notwithstanding, the choice of design features critically affects this result.