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Policy interaction between the EU Emissions Trading System and the Renewable Energy Directive
The EU has opted to integrate climate and energy policies. However, EU stakeholders such as the power and trading sectors are concerned about the detrimental effects of renewable energy (RE) support measures on the EU emissions trading system (ETS).
The over-achievement of the RE target meant that the power sector did not contribute GHG emissions reductions beyond what would be delivered through the ETS, but reduced the demand for ETS allowances (EUAs) and lowered EUA prices. Emissions reductions delivered by RE support measures such as Feed-in-Tariffs (FiTs) have higher abatement costs than those delivered through cap-and-trade systems such as the EU ETS. It is important to understand how the RES Directive affects the ETS, to identify the conditions under which the directive will undermine the purpose of the ETS, and to limit such an effect.