Energy efficiency and short-term demand response are key issues in the decarbonization of power markets. However, their interaction and combined impact on market prices as well as on the supply side, is yet to be understood. We develop a framework to implement investments in energy efficiency and short-term demand response in detailed partial equilibrium power market models. We quantify our results using the EU-REGEN model for the European power market and find that energy efficiency contributes, under a 80% emission reduction target, only 11% of carbon emission reductions. Intermittent renewable energies such as wind and solar power account for the major share of 53%. However, both energy efficiency and short-term demand response have their merits in reducing marginal abatement costs and additionally exhibit an subadditive effect, at least under a 80% climate policy.JEL code: C61, L94, Q41, Q51

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Substantial parts of this paper were written during times where Klaus Eisenack and Mathias Mier were employed at University of Oldenburg. We gratefully acknowledge the support that we received there. Moreover, we gratefully acknowledge helpful comments from participants at