The Economic Cost of Carbon Abatement with Renewable Energy Policies

CER-ETH – Center of Economic Research at ETH Zurich Working Paper No. 17/273

44 Pages Posted: 16 Jun 2017 Last revised: 8 Sep 2017

See all articles by Jan Abrell

Jan Abrell

ETH Zürich - Centre for Energy Policy and Economics (CEPE)

Mirjam Kosch

ETH Zürich

Sebastian Rausch

ZEW – Leibniz Centre for European Economic Research; Heidelberg University - Alfred Weber Institute for Economics

Date Written: June 15, 2017

Abstract

This paper exploits the randomness and exogeneity of weather conditions to identify the economic cost of decarbonization through renewable energy (RE) support policies. We find that both the aggregate cost and the distribution of cost between energy producers and consumers vary significantly depending on which type of RE technology is promoted — reflecting substantial heterogeneity in production cost, temporal availability of natural resources, and market conditions (i.e., time-varying demand, carbon intensity of installed production capacities, and opportunities for cross-border trade). We estimate that the cost for reducing one ton of CO2 emissions through subsidies for solar are €500–1870. Subsidizing wind entails significantly lower cost, which can even be slightly negative, ranging from €-5–230. While the economic rents for energy producers always decrease, consumers incur three to five times larger costs when solar is promoted but gain under RE policies promoting wind.

Keywords: Decarbonization, Renewable Energy Policies, Wind, Solar, Electricity, Economic Cost, Distributional Impacts

JEL Classification: Q28, Q48, Q54, L94, C01

Suggested Citation

Abrell, Jan and Kosch, Mirjam and Rausch, Sebastian, The Economic Cost of Carbon Abatement with Renewable Energy Policies (June 15, 2017). CER-ETH – Center of Economic Research at ETH Zurich Working Paper No. 17/273, Available at SSRN: https://ssrn.com/abstract=2987006 or http://dx.doi.org/10.2139/ssrn.2987006

Jan Abrell

ETH Zürich - Centre for Energy Policy and Economics (CEPE) ( email )

8092 Zurich
Switzerland

Mirjam Kosch

ETH Zürich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

Sebastian Rausch (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.sebastianrausch.com

Heidelberg University - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
110
Abstract Views
485
rank
273,695
PlumX Metrics