Regulation Mismatch in Tackling CO2 Emissions

By defining three targets as pillars of their environmental policy (20% cleaning, 20% greening, and 20% saving energy by 2020), European authorities are putting out noisy signals on what the actual objective is and how to achieve it. I show that, whereas the community-wide CO2 market (named Emissions Trading System, ETS) is one of the right answers to fix greenhouse gas emissions, the policy tools implemented by Member States to achieve the greening and saving objectives reduce the efficiency of ETS and push the CO2 price down. I then analyze the efficiency distortions created by the forced entry of renewable energy sources into the mix of electricity production.