ETS & Ecodesign – Anything in Common? Assessment of the interactions between the EU Emission Trading Scheme and the Ecodesign Directive

In the EU, climate policy-making takes place in a complex environment, where multiple climate and energy policy instruments co-exist and interact together. Interactions between different climate and energy instruments can affect - positively or negatively - the achievement of the climate targets. However, the performance of instruments is often evaluated without taking into account those interactions and, therefore, the interactions are often overlooked. The review of the academic literature suggests that the strong focus has been devoted to the interactions between the EU Emission Trading Scheme (ETS), the EU’s flagship climate policy, and different renewable energy support scheme. The lesser focus in the literature has been dedicated to understanding the interactions between the ETS and various energy efficiency measures. According to the European Commission, one of the most effective instruments to promote energy efficiency is the Ecodesign Directive that sets Minimum Energy Performance Standards (MEPS) for energy-related products. Thus, this research aims to understand how the Ecodesign Directive interacts with the EU ETS and how the synergies between the instruments can be enhanced and overlaps can be mitigated. The research examines the interaction between the two instruments at the policy instrument level, employing a qualitative evaluation approach. The context in which both instruments operate as well as stakeholders’ perspectives towards interactions are examined, as they can determine whether interactions are positive or negative. The research highlights that both instruments lead to a reduction of GHG emissions in the energy sector, and if the reduction of the emissions achieved by the Ecodesign Directive (and other energy efficiency measures) is not anticipated in the cap of the ETS, it will have a negative impact on the price of the allowances. The policy implications to reduce the potential negative impact on the price of allowances are further presented in the research, including the need to adjust the cap level, the potential use of Market Stability Reserve and the need for transparency