Improving the European Commission's analytical base for designing instrument mixes in the energy sector: Market failures versus system weaknesses

Journal article, 2017

© 2017 Elsevier Ltd. To limit global warming to 1.5-2°C, EU needs to eliminate emissions of CO 2 equivalents over the next decades, which necessitates that a range of new technologies develop, mature and diffuse on a massive scale. To create conditions for this, effective instrument mixes have to be designed and implemented. However, the choice of such mixes depends on the analytical rationale for policy intervention. The purpose of this paper is, therefore, to scrutinize the analytical base of the EU Commission, contrast it with the work of classical economists and recent innovation scholars, and draw lessons for how effective mixes of policy instruments may be identified. We show that the Commission's focus on market failures, static efficiency and technology neutrality does not cover all possible obstacles and leads it to neglect the centrality of dynamic efficiency and the structural build-up of innovation systems around new technologies.