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

As the number of environmental policy instruments grows, so the potential for interaction between different instruments increases. This interaction can be either 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 a scheme for carbon emissions trading. Both instruments seek improved 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 four 'implementation scenarios' for IPPC, in which the potential interaction with a carbon trading scheme is assessed. The paper concludes that a minimalist interpretation of the IPPC energy efficiency requirements is to be preferred if regulated installations are to effectively participate in a carbon trading scheme. [author]