Mission possible: bringing end-use energy efficiency to the European Emissions Trading Scheme

Panel: Panel 1: The foundations of a future energy policy. Longer term strategies

Authors:
Silvia Rezessy, Central European University, Hungary
Paolo Bertoldi, European Commission, DG JRC, Italy
Monique Voogt, Ecofys Netherlands, Netherlands

Abstract

There is no dispute that end-use energy efficiency is the quickest and most cost efficient solution to reducing CO2 emissions. The European Emissions Trading Scheme (EU ETS), a cornerstone of the EU climate change policy, in its present design has limited impact on certain types of end-use energy efficiency measures, as well as on renewable energy sources. Although promotion of energy efficiency is not the objective of the EU ETS, its extension to less energy intensive sectors, and the inclusion of end-use efficiency projects, could foster energy savings. The paper looks at those features of the current EU ETS that may have unintended or limited effects on additional efforts in end-use energy efficiency and explores the design adaptations in EU ETS that would remedy potential flaws. In particular new allocation methods and the equivalence between carbon allowances and credits are discussed. The paper proposes solutions how to include end-use energy efficiency (and new small scale renewable energy generation) in the EU ETS, through both a direct integration of energy efficiency carbon credits in the EU ETS, or through set-aside allowances for efficiency. The paper explores practical solutions for carbon ownership and correct carbon accounting and examines factors that influence the exchange among white certificate and carbon markets. While the primary scope of the ETS is to reduce emissions in a cost effective manner, depending on its design the EU ETS could also foster energy efficiency, thus bringing additional and cheaper options to the carbon market.