Energy company obligations to save energy in Italy, the UK and France: what have we learnt?

Panel: Panel 2. Policy implementation: learning from the past, improving the future

Authors:
Nick Eyre, Environmental Change Institute, Oxford University Centre for the Environment, UK
Marcella Pavan, Autorità per l'energia elettrica e il gas (AEEG), Head of Energy Efficiency and Demand Response, Italy
Luc Bodineau, Coordinateur CEE, Department Marchés et Services d'Efficacité Energétique, ADEME, France

Abstract

Market failures and other barriers to energy efficiency result in some cost-effective opportunities for energy efficiency improvement not occurring within a free market. This causes economic inefficiency and results in higher energy costs, increased carbon emissions and greater risks to energy security. Intervention to address these issues in competitive energy supply markets is therefore justified, but should be transparent and equitable between different actors in the market. Tradable obligations on energy companies can achieve these goals. This paper outlines the experience of such obligations in three major European countries. Market liberalization in European countries led to new formal regulatory structures at the same time as concerns about energy security and climate change were growing. The UK, Italy and France all chose to address these challenges, in part, through tradable obligations. However, different national priorities and different energy market structures led to a variety of policy designs. This paper outlines these different designs, including the ‘governance approach’ (responsibility for regulation and administration), obligated parties, scope, scale and tradable commodity. It identifies the expected, and currently observed, outcomes - both quantitative and qualitative changes to energy markets. It comments on some key issues, including the impact of different energy market structure on regulatory choices and their outcomes, the importance of monitoring and evaluation and the effectiveness of the markets for trading. The paper compares and discusses the process of learning at national level and draws conclusions about key design issues for this type of policy instrument.