Combining climate and energy policies: Synergies or antagonisms?

Abstract

The European Union plans to include an energy efficiency binding target in addition to the renewable energy and CO2 emissions targets. This would be the third binding target in the Climate and Energy Package. In this paper, we develop a requisite framework to study interactions arising from the combination of instruments aiming at reducing emissions, promoting renewable energy production and reducing energy demand through energy efficiency investments. The model allows for the exact assessment of the instruments interactions for quantities and prices. All studied instruments lead to emissions reductions. Moreover, a carbon price tends to give the right incentives for renewable energy and energy efficiency objectives as well. Contrary to these expected positive outcomes, we find that the combination of more than two instruments leads to significant antagonisms regarding major policy objectives.