LOSCHEL Andreas

Abstract The ongoing transformation of the world’s energy systems requires an international monitoring to evaluate the transformation processes and to identify transferable leading practice policies. For this purpose, an independent scientific expert commission should be established for the G20. By actively involving political decision-makers in the discussion of the final results a broad basis of support can be ensured. The Climate and Energy Action Plan for Growth agreed at the G20 Summit in Hamburg recognizes explicitly the main proposals of this paper. The paper provides a broader discussion how to assist the G20’s energy transformation processes and describes steps towards implementation.

The European Union׳s current climate and energy policy has to operate under an ex ante unforeseen economic crisis. As a consequence prices for carbon emission allowances in the EU Emissions Trading System collapsed. However, this price collapse may be amplified by the interaction of a carbon emission cap with supplementary policy targets such as minimum shares for renewables in the power sector. The static interaction between climate and renewable policies has been discussed extensively. This paper extends this debate by analysing the efficiency and effectiveness of a policy portfolio containing a cap and trade scheme and a target for a minimum renewable share in different states of aggregate electricity demand. Making use of a simple partial equilibrium model of the power sector we identify an asymmetric interaction of emissions trading and renewable quotas with respect to different states of aggregate electricity demand. The results imply that unintended consequences of the policy interaction may be particularly severe and costly when aggregate electricity demand is low and that carbon prices are more sensitive to changes in economic activity if they are applied in combination with renewable energy targets. Our analysis of the policy interaction focuses on the EU, yet the conclusions may also be of relevance for fast growing emerging economies like China.