State Aid, Energy and the Environment

Law & Economics Workshop organized by Concurrences in partnership with White & Case and CompetitionRx.

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Vincent Verouden (DG COMP )

An important part of the effort to reduce greenhouse gas emissions (GHG) will relate to electricity generation. This is for several reasons. Not only does the electricity sector account for more than a third of total GHG emissions in the EU, it also has significant decarbonisation potential, both because electricity production itself can become much less carbon-intensive (e.g. by switching to renewable energy sources such as wind and solar energy) and because it can facilitate the deployment of low-carbon technologies in other sectors such as the transport sector (through the increased use of electric vehicles). In other words, the power generation sector is pivotal for achieving the GHG reduction targets.

The EU Emissions Trading System (EU ETS), launched in 2005, is the cornerstone of the European Union’s drive to reduce its emissions of greenhouse gases. The system works by putting a limit (a ‘cap’) on overall emissions from large emitters in the industrial sector, including power generation. Within this limit, companies can buy and sell emission allowances as needed. The purpose of this ‘cap-and-trade’ approach is to fix a target (the cap) and give companies incentives to cut their emissions in the most cost-effective way: in principle, the price signals produced by EU ETS should foster investment in power production based on low-carbon energy sources where it is efficient to do so (and disincentivise it where it is not). The EU ETS entered its third trading period at the start of 2013 and now covers around 45% of total EU emissions. The cap is reduced every year so as to reach the required ETS target by 2020.

Photos © Emilie Gomez

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