Environmental and Technology Policy Options in the Electricity Sector: Interactions and Outcomes

51 Pages Posted: 15 May 2014

See all articles by Carolyn Fischer

Carolyn Fischer

Resources for the Future

Richard G. Newell

Duke University - Nicholas School of Environment; National Bureau of Economic Research (NBER); Resources for the Future

Louis Preonas

University of California, Berkeley - Department of Agricultural & Resource Economics

Multiple version iconThere are 3 versions of this paper

Date Written: April 14, 2014

Abstract

Myriad policy measures aim to reduce greenhouse gas emissions from the electricity sector, promote generation from renewable sources, and encourage energy conservation. To what extent do innovation and energy efficiency (EE) market failures justify additional interventions when a carbon price is in place? We extend the model of Fischer and Newell (2008) with advanced and conventional renewable energy technologies and short and long-run EE investments. We incorporate both knowledge spillovers and imperfections in the demand for energy efficiency. We conclude that some technology policies, particularly correcting R&D market failures, can be useful complements to emissions pricing, but ambitious renewable targets or subsidies seem unlikely to enhance welfare when placed alongside sufficient emissions pricing. The desirability of stringent EE policies is highly sensitive to the degree of undervaluation of EE by consumers, which also has implications for policies that tend to lower electricity prices. Even with multiple market failures, emissions pricing remains the single most cost-effective option for reducing emissions.

Keywords: climate change, cap-and-trade, renewable energy, portfolio standards, subsidies, spillovers, energy efficiency, electricity

JEL Classification: Q420, Q520, Q550, Q580

Suggested Citation

Fischer, Carolyn and Newell, Richard G. and Preonas, Louis, Environmental and Technology Policy Options in the Electricity Sector: Interactions and Outcomes (April 14, 2014). CESifo Working Paper Series No. 4757. Available at SSRN: https://ssrn.com/abstract=2436829

Carolyn Fischer (Contact Author)

Resources for the Future ( email )

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Richard G. Newell

Duke University - Nicholas School of Environment ( email )

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National Bureau of Economic Research (NBER) ( email )

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Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
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Louis Preonas

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

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