A Decarbonization Strategy for the Electricity Sector: New-Source Subsidies
Energy Policy, Forthcoming
39 Pages Posted: 29 Jun 2009 Last revised: 22 Jan 2010
Date Written: January 13, 2010
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.
Keywords: Cap-and-trade, carbon tax, subsidy
JEL Classification: H21, O38, Q28, Q48
Suggested Citation: Suggested Citation