The Lear Competition Note (LCN) discusses the existing literature on the interaction between State aid intervention that incentivizes the investment in decarbonisation technologies and the market-based mechanism relying on the European Union Emission Trading System (ETS). Now in its fourth phase, the EU ETS is often considered the most effective policy to reduce greenhouse gas emissions.
The mere existence of market failures in a certain context is not sufficient to justify State intervention. Other policies and measures may already be in place to address some of the market failures identified. Different measures to remedy the same market failure may counteract each other. The LCN discusses to what extent State aid intervention might be needed and appropriate to achieve climate neutrality, when Member States already rely on the ETS.