Countries in the European Union should prioritise carbon pricing policies rather than subsides for low-carbon electricity to reduce emissions in their power sectors, new research to be published today suggests.
Carbon pricing is a more cost-effective way to reduce emissions as renewable sources of electricity become cost-competitive with fossil fuels, according to analysis by researchers from the Grantham Research Institute and the London School of Economics.
Carbon pricing is a method whereby companies that emit carbon dioxide emissions are charged at a certain price per tonne - currently £18 per tonne in the UK.
The report, which summarises the findings of three new studies funded by Norwegian power company Statkraft, will be presented to an audience of policy makers and business representatives in Brussels today.
It argues carbon pricing treats low-carbon generators neutrally, which “implies a more even distribution of policy costs and benefits among generators”.
The EU is on track to meet its 2020 emissions targets, but member states will need stronger policies to meet the more ambitious 2030 goal, the report says, and carbon pricing is the most effective way to do that.
EU members should make further emissions reductions by applying carbon pricing to sectors not currently covered by the European Union Emissions Trading System, like transport and waste, the report said.
It also found credible decarbonisation policies were "vital" for building trust among investors and the international community as well as for helping to increase the ambition of political commitments over time.
The UK, Denmark and Germany were ranked to have the most credible plans for the power sector from the eight countries analysed in the report.