Interaction between environmental policy instruments: carbon emissions trading and Integrated Pollution Prevention and Control

As the number of environmental policy instruments grows, so the potential for interaction between different instruments increases. This interaction can be detrimental or beneficial. To avoid conflict, it is essential that the potential for interaction be assessed during the formulation of new policy instruments. This paper illustrates this through an analysis of how the European Directive on Integrated Pollution Prevention and Control might interact with future schemes for carbon emissions trading. Both instruments encourage industrial energy efficiency, but in fundamentally different ways. This is demonstrated through a detailed comparison of the two policy instruments, followed by the development of three implementation scenarios for IPPC, in which the interaction with potential carbon trading schemes is assessed. The paper concludes that the interpretation of the IPPC energy efficiency requirements could either constrain or facilitate the participation of regulated installations in any carbon trading scheme.