The Economics of Renewable Energy Support

CER-ETH Center of Economic Research at ETH Zurich, Working Paper No. 18/286

56 Pages Posted: 13 Mar 2018

See all articles by Jan Abrell

Jan Abrell

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

Sebastian Rausch

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

Clemens Streitberger

ETH Zürich - Department of Management, Technology and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 9, 2018

Abstract

This paper uses theoretical and numerical economic equilibrium models to examine optimal renewable energy (RE) support policies for wind and solar resources in the presence of a carbon externality associated with the use of fossil fuels. We emphasize three main issues for policy design: the heterogeneity of intermittent natural resources, budget-neutral financing rules, and incentives for carbon mitigation. We find that differentiated subsidies for wind and solar, while being optimal, only yield negligible efficiency gains. Policies with smart financing of RE subsidies which either relax budget neutrality or use “polluter-pays-the-price” financing in the context of budget-neutral schemes can, however, approximate socially optimal outcomes. Our analysis suggests that optimally designed RE support policies do not necessarily have to be viewed as a costly second-best option when carbon pricing is unavailable.

Keywords: Renewable Energy, Wind, Solar, Environmental Regulation, Climate Policy, Decarbonization, Renewable Subsidies, Carbon Pricing, Heterogeneity of Natural Resources, Feed-in tariffs, Green quota

JEL Classification: Q28, Q42, Q52, Q58, C61

Suggested Citation

Abrell, Jan and Rausch, Sebastian and Streitberger, Clemens, The Economics of Renewable Energy Support (March 9, 2018). CER-ETH Center of Economic Research at ETH Zurich, Working Paper No. 18/286, Available at SSRN: https://ssrn.com/abstract=3137012 or http://dx.doi.org/10.2139/ssrn.3137012

Jan Abrell

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

8092 Zurich
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

Clemens Streitberger

ETH Zürich - Department of Management, Technology and Economics ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
64
Abstract Views
614
rank
281,524
PlumX Metrics