Carbon Abatement with Renewables: Evaluating Wind and Solar Subsidies in Germany and Spain

49 Pages Posted: 10 Jan 2019

See all articles by Jan Abrell

Jan Abrell

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

Mirjam Kosch

ETH Zürich

Sebastian Rausch

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich; Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Date Written: January 10, 2019

Abstract

This paper exploits the exogeneity of weather conditions to evaluate renewable energy (RE) subsidy programs in Germany and Spain in terms of their costs for reducing carbon dioxide emissions. We find that both the aggregate costs and the distribution of costs between energy producers and consumers vary significantly depending on which type of RE technology is promoted| - reflecting substantial heterogeneity in production costs, 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 costs for reducing one ton of CO2 emissions through subsidies for solar are e411-1'944. Subsidizing wind entails significantly lower costs, ranging from e82-276. While the economic rents for energy producers always decrease, consumers incur four to seven times larger costs when solar is promoted but gain under RE policies promoting wind.

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

Suggested Citation

Abrell, Jan and Kosch, Mirjam and Rausch, Sebastian, Carbon Abatement with Renewables: Evaluating Wind and Solar Subsidies in Germany and Spain (January 10, 2019). USAEE Working Paper, Available at SSRN: https://ssrn.com/abstract=3313637 or http://dx.doi.org/10.2139/ssrn.3313637

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)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

77 Massachusetts Ave, Bldg E40-474
Cambridge, MA 02139
United States

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