The synergies between EU climate and renewable energy policies–evidence from Portugal using integrated modelling

In the current debate about the cost-effectiveness of the EU climate and energy policy, the coexistence of greenhouse gas (GHG) emissions reduction and renewable energy targets, as well as the EU Emissions Trading Scheme (ETS), have been subject to some criticism. In this paper we explore the interactions between EU climate and renewable energy targets and policies, by assessing the synergies and trade-offs between alternative policy designs and implementation mechanisms to cope with the EU GHG emissions reduction and renewable energy targets for 2030. The analysis is carried out by using the Hybrid Bottom-up General Equilibrium Model (HyBGEM) and taking Portugal as a case study. Results show that the current segmentation of the EU emissions market (between ETS and non-ETS sectors) leads to a costly emissions mitigation. Moreover, imposing a renewable energy target on top of the emissions constraints may attenuate the GHG abatement costs from second-best induced gains in efficiency. Renewable energy subsidies act as a correction of pre-existing taxation on the Portuguese economy, countervailing excess burden on abating carbon emissions. These findings suggest that the cost-effectiveness of climate mitigation and energy policies is interlinked with the country’s economic, financial and energy characteristics, emphasizing the need to consider the specificities of each Member State when designing policy mixes.