Strategic Technology Policy as a Supplement to Renewable Energy Standards

37 Pages Posted: 18 Feb 2016

See all articles by Carolyn Fischer

Carolyn Fischer

Resources for the Future

Mads Greaker

Statistics Norway

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Date Written: January 20, 2016

Abstract

In many regions, renewable energy targets are a primary decarbonization policy. Most of the same jurisdictions also subsidize the manufacturing and/or deployment of renewable energy technologies, some being sufficiently aggressive as to engender WTO disputes. We consider a downstream energy-using product produced competitively but not traded across regions, such as electricity or transportation. A renewable energy technology is available, provided by a limited set of upstream suppliers who exercise market power. With multiple market failures (emissions externality and imperfect competition), renewable market share targets as the binding climate policy, and international trade in equipment, the stage is set to examine rationales for green industrial policy. Subsidies may be provided downstream to energy suppliers and/or upstream to technology suppliers; each has tradeoffs. Subsidies can offset underprovision upstream, but they allow dirty generation to expand when the portfolio standard becomes less binding. Downstream subsidies raise all upstream profits and crowd out foreign emissions. Upstream subsidies increase domestic upstream market share but expand emissions globally. In our two-region model, strategic subsidies chosen noncooperatively can be optimal from a global perspective, if both regions value emissions at the global cost of carbon. But if the regions sufficiently undervalue global emissions, restricting the use of upstream subsidies can enhance welfare.

JEL Classification: Q500

Suggested Citation

Fischer, Carolyn and Greaker, Mads and Rosendahl, Knut Einar, Strategic Technology Policy as a Supplement to Renewable Energy Standards (January 20, 2016). CESifo Working Paper Series No. 5710. Available at SSRN: https://ssrn.com/abstract=2734028

Carolyn Fischer

Resources for the Future ( email )

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Mads Greaker

Statistics Norway ( email )

N-0033 Oslo
Norway

Knut Einar Rosendahl (Contact Author)

Norwegian University of Life Sciences ( email )

PO Box 5033
NO-1432 Aas
Norway
+47 64966117 (Phone)

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway
+47 21094954 (Phone)
+47 21094963 (Fax)

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