The implications of the Kyoto project mechanisms for the deployment of renewable electricity in Europe

EU energy/environmental policy has at least two major and interrelated goals: to increase the percentage of electricity from renewable energy sources (RES-E) and to control the emission of GHG cost efficiently. These two goals could be in conflict. This paper explores one aspect of this conflicting relationship, namely the effect that the use of the Kyoto Protocol project mechanisms (CDM/JI project) may have on the deployment of RES-E within EU borders.The main conclusion is that, under certain assumptions (i.e., no mandatory EU RES-E quota), CDM/JI projects might reduce the incentive to deploy RES-E within EU borders because they would allow European power companies to comply with GHG targets in a cheaper way than if they reduced emissions by investing in renewable electricity in Europe. This is problematic, since many benefits from renewable electricity are local and these would be gone. This situation would be different if a mandatory RES-E quota (combined with an EU-wide TGC scheme) was implemented. In this case, the RES-E target would be fulfilled and CDM/JI projects would only affect RES-E deployment exceeding the target.