The electricity sector is one of the largest carbon emitters in Europe. To control these emissions, economic instruments such as emissions trading, taxes and various voluntary agreements are increasingly being considered. However, electricity systems in Europe are diverse between different countries, appropriate policies may differ widely, and similar instruments may have different effects in different countries. This study aims first to define the various economic policy instruments being used or considered in the electricity sector, including the point of application and protection measures such as border adjustments. Secondly, it describes the main characteristics of the major European electricity sectors, including the different generation mixes and options, and divergent policy cultures. Thirdly, conclusions are drawn concerning the instruments likely to be developed, both on national and EU level, their potential impact, and the potential interactions of different instruments within and between countries, including issues relating to international electricity and emissions trading.