Ambition 5: Developing fair and efficient energy and carbon markets

As detailed in CERRE’s report on electricity market design, electricity markets have shown resilience under stress. Despite individual countries facing challenges, these experiences provide insights to improve market designs and regulatory frameworks. Monitoring the impacts of energy transitions on different demographic groups remains crucial. Past crises have emphasised the need for targeted support to avoid resource misallocation, such as subsidies supporting fossil fuels. CERRE proposes creating a European Energy Transition Observatory to assess distributional impacts and guide policies toward fair outcomes.

Extend the EU Emissions Trading System

To strengthen the EU Emissions Trading System (ETS), CERRE advocates for merging ETS I (covering electricity and industry) with ETS II (heating and transport). This will create a unified carbon market, eliminating inefficiencies. The Carbon Border Adjustment Mechanism (CBAM) requires improvement to prevent unfair competition and promote a single carbon price across regions. Additionally, CERRE encourages reintroducing Certified Emissions Reductions (CERs) into the EU ETS and fostering negative emissions technologies like Carbon Capture and Storage (CCS) and Direct Air Capture (DAC).

Promote further energy efficiency

Energy efficiency remains vital for reducing exposure to energy price shocks. The EU should continue to invest in energy-saving measures such as building retrofits and promote policies to lower gas demand. This includes public campaigns and tariffs that incentivise energy reductions, especially for non-vulnerable consumers, and embracing technologies like smart appliances to optimise energy use.

Deepen single energy market integration

Further integrating the EU’s energy market is crucial for security and cost-effectiveness. Expanding cooperation with neighbouring countries and removing trade barriers will enhance energy security. Integrating new members like Ukraine and Moldova into the EU energy system will present challenges but offer long-term benefits for achieving the EU’s 2040 and 2050 climate goals.

Fast-track low-carbon investments

The EU must accelerate investments in clean energy technologies like nuclear and offshore wind to meet its climate targets. Addressing grid constraints, cross-border infrastructure, and regulatory challenges is key to supporting these investments and ensuring timely delivery of low-carbon solutions.

Stick to a proven market design 

CERRE advises against dramatic market changes, recommending that the EU build on its successful energy market design. Expanding wholesale pricing zones and promoting Power Purchase Agreements (PPAs) can enhance efficiency and stabilise prices while allowing member states flexibility in market regulation.

Better link the wholesale and retail markets

Aligning wholesale and retail energy prices is essential for improving consumer awareness and encouraging energy conservation. Longer-term contracts, financial regulations for suppliers, and transparent pricing will empower consumers and promote fair competition in retail energy markets.