A Decarbonization Strategy for the Electricity Sector: New-Source Subsidies
Kenneth C. Johnson
January 13, 2010
Energy Policy, Forthcoming
An expedient phase-out of carbon emissions in the electricity sector could be facilitated by imposing carbon fees and applying the revenue exclusively to subsidize new, low-carbon generation sources. Since there would initially be no "new sources," fees would be substantially zero at the outset of the program. Nevertheless, the program would immediately create high price incentives for low-carbon capacity expansion. Fees would increase as new, low-carbon sources gain market share, but price competition from a growing, subsidized clean-energy industry would help maintain moderate retail electricity prices. Subsidies would automatically phase out as emitting sources become obsolete.
Number of Pages in PDF File: 39
Keywords: Cap-and-trade, carbon tax, subsidy
JEL Classification: H21, O38, Q28, Q48
Date posted: June 29, 2009 ; Last revised: January 22, 2010
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