The Interaction of Emissions Trading and Renewable Energy Promotion
Given the ambitious goal of the European Union to achieve CO2 emission reduction, support to renewable energies, and increased energy efficiency a portfolio of different policies is going to be implemented or is already in place in the member states. These instruments have at least partly overlapping objectives; thus, a high degree of interaction is to be expected. In this paper we analyze how the EU ETS and renewable support mechanisms influence one another. We apply a static open economy computable general equilibrium (CGE) model of Germany incorporating different conventional and renewable generation technologies. We find that in case of an ETS with a green certificate trading scheme or a feed in system the price for carbon drops to zero due to the high share of CO2 neutral renewable generation. Furthermore, the welfare reducing effect of an additional renewable support mechanism is rather low for both schemes.