Impact of CO2 prices on the design of a highly decarbonised coupled electricity and heating system in Europe

Abstract Ambitious targets for renewable energy and CO 2 taxation both represent political instruments for decarbonisation of the energy system. We model a high number of coupled electricity and heating systems, where the primary sources of CO 2 neutral energy are from variable renewable energy sources (VRES), i.e. , wind and solar generators. The model includes hourly dispatch of all technologies for a full year for every country in Europe. In each model run, the amount of renewable energy and the level of CO 2 tax are fixed exogenously, while the cost-optimal composition of energy generation, conversion, transmission and storage technologies and the corresponding CO 2 emissions are calculated. We show that even for high penetrations of VRES, a significant CO 2 tax of more than 100 €/tCO 2 is required to limit the combined CO 2 emissions from the sectors to less than 5% of 1990 levels, because curtailment of VRES, combustion of fossil fuels and inefficient conversion technologies are economically favoured despite the presence of abundant VRES. A sufficiently high CO 2 tax results in the more efficient use of VRES by means of heat pumps and hot water storage, in particular. We conclude that a renewable energy target on its own is not sufficient; in addition, a CO 2 tax is required to decarbonise the electricity and heating sectors and incentivise the least cost combination of flexible and efficient energy conversion and storage.