EEAG revision support study

This report supports the European Commission's revision of the EEAG and section 7 of the GBER. It consists of 3 study items that address distinct questions: Study Item 1: The measurement of cost-effectiveness (EUR per tonne of CO2 avoided) allows for the assessment of relative decarbonisation benefits of policies, but may not always capture their overall environmental impact. Wind, solar and energy efficiency have similar cost-effectiveness, while cogeneration of heat and power is less cost-effective. Fo cusing on decarbonisation objectives only, multi-technology auctions improve cost-effec tiveness by prioritising less costly technologies. If potential inframarginal rents and dy namic effects are also considered, then technology-specific auctions may exhibit lower carbon mitigation costs in some cases. Study Item 2: Research on operating and investment aid is reviewed, with the finding that for environmentally friendly energy aid, some distortions have arisen from the nature of aid, but that both investment and especially operating aid can yield positive outcomes. Analysis of four actual schemes with operating or investment aid suggests that precise scheme design matters for success and often evolves with time. Three aid schemes are examined for industrial decarbonisation. Aid levels of 40% for fixed aid intensity are deemed unlikely, if the maximum aid intensities remain unchanged, to provide sufficient support for several industrial decarbonisation routes. Study Item 3: Empirical studies support the relevance of electro-intensity and trade in tensity for eligibility of energy-intensive users for levy exemptions in the EEAG. The anal ysis of levies from 2011 to 2018 highlights their large heterogeneity across sectors, coun tries and over time. Scenarios harmonising levies to the highest levy and abolishing ex emptions lead to a substantial decrease in profits. A limited profit decrease is predicted when levies change by a percentage value, an absolute level or are partially harmonised to a threshold.