The impact of the EU Emission Trading Scheme on the diffusion of climate protection innovations – the case of German local utilities

Nele Glienke, Karoline Rogge, and Katrin Ostertag, Fraunhofer Institute Systems and Innovation Research, Department Sustainability and Infrastructure, Germany

Keywords

energy policy, liberalisation, climate policy, renewable energy sources, RES, emission trading, EU ETS, combined heat and power, CHP, innovation, local utilities

Abstract

This paper analyses the effect of the novel market-based instrument of emission trading on investment strategies of local utilities in the climate friendly technologies of combined heat and power (CHP) and renewable energy resources (RES). We take the example of the German electricity sector, where the economic conditions have been subject to dramatic changes in recent years. The market liberalisation process along with the introduction of feed-in-tariffs for RES and CHP plants in combination with the European Emission Trading Scheme (EU ETS) represent challenges and opportunities for all actors in the energy sector. This paper addresses German local utilities in particular, as they are strongly affected by the market liberalisation leading to consolidation processes which require careful strategic repositioning.