International Carbon Emissions Trading and Strategic Incentives to Subsidize Green Energy

24 Pages Posted: 15 Jun 2010

See all articles by Thomas Eichner

Thomas Eichner

University of Siegen - School of Economic Disciplines

Rudiger Pethig

University of Siegen - School of Economic Disciplines; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 14, 2010

Abstract

This paper examines strategic incentives to subsidize green energy in a group of countries that operates an international carbon emissions trading scheme. Welfare-maximizing national governments have the option to discriminate against energy from fossil fuels by subsidizing green energy, although in our model green energy promotion is not efficiency enhancing. The cases of small and large countries turn out to exhibit significantly differences. While small countries refrain from subsidizing green energy and thus implement the efficient allocation, large permit-importing countries subsidize green energy in order to influence the permit price in their favor.

Keywords: emissions trading, black energy, green energy, energy subsidies

JEL Classification: H21, Q42, Q48

Suggested Citation

Eichner, Thomas and Pethig, Rudiger, International Carbon Emissions Trading and Strategic Incentives to Subsidize Green Energy (June 14, 2010). CESifo Working Paper Series No. 3083. Available at SSRN: https://ssrn.com/abstract=1624801

Thomas Eichner

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

Rudiger Pethig (Contact Author)

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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