National environmental targets and international emission reduction instruments

According to the agreed burden sharing within the European Union the overall EU emission reduction target as agreed by in the Kyoto protocol is converted into national greenhouse gas reduction-targets for each of the member states. In parallel with national emission reduction initiatives common EU policies for emission reductions are considered. Currently discussed is the introduction of a market for tradable permits for CO2-emissions to achieve emission reductions within the power industry and other energy intensive industries. In parallel with this markets for green certificates to deploy renewable energy technologies seem to be appearing in a number of countries, among these Denmark, Italy, Sweden, Belgium (Flanders), England and Australia. Although these national initiatives for a green certificate market are fairly different, they could be a starting point for establishing a common EU certificate market. But interactions between national targets for greenhouse gas emissions and these international instruments for emission reduction are not a trivial matter, especially not seen in relation to the possible contributions of these instruments in achieving national GHG-reduction targets. The paper is split into three parts all taking a liberalised power market as starting point: The first part discusses the consequences of a general deployment of renewable energy technologies, using planning initiatives or national promotion schemes (feed-in tariffs). In the second part an international green certificate market is introduced into the liberalised power market context, substituting other national promotion schemes. Finally, in the third part a combination of an international green certificate market (TGC) and an international emission-trading scheme for CO2 is analysed within the liberalised international power market set-up. The main conclusion is that neither the use of national renewable support schemes nor the introduction of a TGC-market into a liberalised power market can be recommended, if these initiatives efficiently are expected to contribute in achieving the national CO2-reduction targets. Countries most ambitious in implementing renewable energy technologies will only partly be gaining the CO2-reduction benefits themselves. The ambitious countries will support the less ambitious ones in achieving their GHG-reduction targets. Finally, in a TGC-market context the most ambitious countries to fulfil their TGC-quotas will have to buy certificates from the less ambitious ones, although this only contributes to fulfilling a national target for renewable development, not in reaching their national CO2-reduction targets. However, a combination of an international tradable permits market and a green certificate market is seen to be efficient in contributing in achieving the national CO2-reduction targets if a close co-ordination of the two instruments is undertaken at least at the national level: When the green power production is increased, the tradable permits quota should be decreased correspondingly. Otherwise the expected CO2-reductions will not contribute by the full value in achieving the national targets for greenhouse gas reductions. Thus, if it is a prerequisite that renewable power contributes to achieving national GHG-reduction targets, then the combination of these two markets might be the right solution.