Review of market-driven approaches in sustainable energy policies

The ENTRUST project aims to analyse the social dimension of the European energy system to achieve a deep understanding of the human factor. It is not possible to have a comprehensive understanding of the energy system without analysing the policy landscape and its influence on energy consumption, and that is the main objective of the WP 4 of ENTRUST.

The first task already resulted in a first deliverable, the D4.1 “Report on policy & regulation landscape”, that provides an overview of the legislation related to the European energy system. As per one of the objectives of ENTRUST, to better understand the human factor in the energy system, a specific analysis focusing on the influences of the energy market and its impact on behavioural change, was added to the mapping undertaken in D4.1. This deliverable 4.3 “Review of market-driven approaches in sustainable energy policies” is the result of this action.

This deliverable aims to review this type of approach in supporting sustainable energy policies. The first part of the deliverable provides an overview on the use of market-based instruments (MBIs) in the six selected countries with specific attention on differences between their strategic orientations. The second part highlights particularly successful uses of MBIs and identifies the best practices to be replicated in the future applications of similar instruments.

To work towards these energy and environmental 2020-objectives and more generally to tackle environmental issues due to human activities, the Member States have several policy approaches to support the sustainable energy policies set at European level: command & control and market-driven approaches. Many emerging sustainable energy technologies are not fully competitive yet, compared to conventional ones. One of the main challenges of the EU Member States is to support their deployment and to “use every tool at [their] disposal to drive down costs, to ensure renewable energy technologies become competitive and ultimately market driven” (EC, 2012-2). Therefore, this report will target specific instruments used by governments or public entities, known as market-based instruments, to stimulate market actors and encourage these actors to direct their choices towards more sustainable solutions.

For the purposes of this deliverable, the following working definition has been adopted, informed by the previous ones:

Market-based instruments are policy tools that seek to address the market failure of environmental externalities by using market signals (either prices or quantities) to stimulate certain behaviours, activities or investments. They either incorporate external costs of production or consumption activities or create property rights in order to encourage citizens or businesses to change their behaviours towards more sustainability.