Weak EU emissions trading with strong renewables obligation compromises long-term CO2 mitigation

The EU greenhouse gas emissions trading system (ETS) has lost importance in directing investments towards low-CO₂ technology due to generous initial allocations, the economic downturn and the extensive national-level support schemes for renewable energy. The present climate and energy policy emphasising RES support fails in delivering effective long-term CO₂ emission reductions. The national-level technology-specific subsidies together with the priority dispatch regulation are in contradiction with the EU energy market liberalisation process. We present three recent examples from Northern Europe, which illustrate the situation from the investor's point of view: abandonment of CCS demonstration project at Meri-Pori coal-fired power plant in Finland, the E.ON. Nordic strategy change in Autumn 2012, including abandonment of the Fennovoima nuclear power project in Finland, and, in the UK, the introduction of carbon floor price and proposed Contract for Difference regime to create sufficient investment case for nuclear new-build.