Renewable Energy Policies Change Carbon Emissions Even Under Emissions Trading

Abstract

In this chapter we review research that rejects the widely held tenet that renewable energy promotion policies have no effect on carbon emissions if the electricity sector is subject to a cap-and-trade scheme. Specifically, it shows that such policies generally do have a net impact on carbon emissions through inter-industry leakage effects. The results also have ramifications for the empirical assessment of renewable energy policies. Furthermore, there might be considerable long-term effects of changing the energy mix in an economy: deliberately changing the energy mix in the power sector affects baseline emissions, marginal abatement costs and the relative importance of vested interests and lobbying groups. Understanding these channels are important avenues for future research to better understand the true effects of supporting renewable energy on total long-run greenhouse gas emissions in regions subject to a cap-and-trade scheme.

Keywords: Cap-and-trade, Overlapping instruments, Leakage, Renewable energy, Climate policy, Feed-in tariff, General equilibrium

JEL Classification: D58, H23, K32, Q48, Q54, Q58