The European Union’s carbon market, designed to save the environment, is being undercut by a patchwork of national subsidies for renewables and misaligned energy policies that have helped cut in half the volume of power being traded.

The bloc wasted a quarter of the $550 billion spent on renewable energy, according to analysis by consulting firm Bain & Co. presented last month at the World Economic Forum in Davos, Switzerland. Some energy-saving policies cost more than 18 times the price of the region’s carbon allowances, Bain said. Power- trading volume in 2014 was 46% that of three years previously, broker data show.

Overspending lowers the chance other nations will emulate the bloc’s plans for emissions cuts as they prepare climate pledges under a United Nations process during the next six weeks, leading to a meeting in Paris in December, according to Bain. The International Energy Agency says the region, which failed to meet its own target for creating a united energy market by last year, risks losing investment in energy-intensive industries to those in the U.S.

“Driving climate actions using the EU emissions trading system will reduce costs. Any alternatives will be both less efficient and less transparent,” Daniele Agostini, head of low- carbon policies, carbon regulation at Enel SpA, Italy’s biggest utility, said Jan. 30 by phone from Rome. “A system that better integrates renewables into the power market will also greatly improve the efficiency” of the EU’s energy policy, he said.

Wind Farms

Uncoordinated national incentives prodded investors to build too many wind farms in Spain and led to a surplus of solar panels in Germany. This wouldn’t have happened to such an extent had the bloc relied more on its carbon market, Julian Critchlow, partner at Bain, said by phone Jan. 23 from Davos.

EU benchmark carbon allowances dropped 2.5% last month, their biggest decline since September. Lawmakers haven’t yet agreed on rules of a reserve that’s designed to deal with a 12-month glut in the world’s biggest greenhouse gas market. Permits were stable at 7.72 euros ($8.80) a metric ton on ICE Futures Europe at 9:53 a.m. in London.

Contending with the possible exit of Greece from the euro area, the region’s lawmakers are simultaneously seeking to redefine the so-called “energy union” of the bloc to make manufacturing more profitable and improve security of supply. EON SE, ThyssenKrupp AG and Dow Chemical Co. are among companies to have warned investment in the region is at risk.