Can the future EU ETS support wind energy investments?

This article discusses how the future Emissions Trading Scheme legislation should be designed to allow the European Union to comply with the 20% CO2 emissions reduction target, while at the same time promoting wind energy investments. We examine whether CO2 prices could eventually replace the existing support schemes for wind and if they adequately capture its benefits. The analysis also looks at the effectiveness of the clean development and joint implementation mechanisms to trigger wind projects and technology transfer in developing countries. We find out that climate policy is unlikely to provide sufficient incentives to promote wind power, and that other policies should be used to internalise the societal benefits that accrue from deploying this technology: CO2 prices can only reflect the beneficial impact of wind on climate change but not its contribution to the security of supply or employment creation. A minimum price of around €40/tCO2 should be attained to maintain present support levels for wind and this excludes income risks and intermediation costs. Finally, CDM improves the return rate of wind energy projects in third countries, but it is the local institutional framework and the long-term stability of the CO2 markets that matters the most.