Net zero at least cost: energy and emissions markets at the core of cost-efficient decarbonisation

Brussels, 17 February 2020 | Achieving a climate neutral economy by 2050 presents a significant challenge that will require fundamental changes across many sectors. Open, competitive, transparent and liquid power, gas and emissions markets are among the core tools necessary to reach the EU’s 2050 net zero target cost-efficiently.

Agreement on the 2050 neutrality objective itself represents an important milestone which we explicitly welcome. To help achieve this, close attention must be paid to the instruments and mechanisms required, including how to trigger the necessary innovation and investment and to achieve decarbonisation at the least cost to the consumer, the taxpayer and the energy system.

Reliable market mechanisms will underpin decarbonisation efforts by:

  • Providing transparent price signals which incentivise the most efficient technologies to be deployed in the most effective locations, supporting further integration between sectors;
  • Guaranteeing the achievement of emission reduction targets by putting a price on greenhousegas emissions and setting a clear cap for total emissions;
  • Integrating renewable generation into the energy market by ensuring that supply is matchedwith demand efficiently across regions;
  • Stimulating the development of new technologies and services through fair and opencompetition, encouraging the entrance of new companies and solutions into the market;
  • Ensuring that consumers as well as all types of decentralised generation and storage benefitfrom links to fully-integrated and liquid energy wholesale markets.

This said, it is important to note that the necessary market conditions do not develop automatically. Poor subsidy design, discriminatory rules or technology bias can put the efficient functioning of markets at risk. Energy and emissions markets must therefore be carefully designed and regulated to ensure fair competition while leaving enough room for entrepreneurship. Regulatory certainty and stability are also needed to encourage investment in innovation and infrastructure.

As the EU Climate Law is developed and as the policies and instruments that make up the European Green Deal are designed, we call on policymakers to explicitly recognise the enabling role that efficient, transparent and reliable energy and emissions markets play in delivering cost-efficient decarbonisation. Strong market principles, further detailed below, should be reflected in the sector specific initiatives as part of the European Green Deal.

1) An efficient EU Internal Energy Market to facilitate the transition to a climate-neutral energy sector

2) A robust market design to support smart sector integration

3) A strong EU ETS as part of a move to global carbon pricing

4) Extension of Guarantees of Origin (GOs) to reliably certify the origin of (renewable) energy

5) A global role for European energy and emissions markets

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