EconStor >
Fondazione Eni Enrico Mattei (FEEM), Mailand >
FEEM Working Papers, Fondazione Eni Enrico Mattei  >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/53216
  
Title:Renewable energy subsidies: Second-best policy or fatal aberration for mitigation? PDF Logo
Authors:Kalkuhl, Matthias
Edenhofer, Ottmar
Lessmann, Kai
Issue Date:2011
Series/Report no.:Nota di lavoro // Fondazione Eni Enrico Mattei: Energy: Resources and Markets 48.2011
Abstract:This paper evaluates the consequences of renewable energy policies on welfare, resource rents and energy costs in a world where carbon pricing is imperfect and the regulator seeks to limit emissions to a (cumulative) target. We use a global general equilibrium model with an intertemporal fossil resource sector. We calculate the optimal second-best renewable energy subsidy and compare the resulting welfare level with an efficient first-best carbon pricing policy. If carbon pricing is permanently missing, mitigation costs increase by a multiple (compared to the optimal carbon pricing policy) for a wide range of parameters describing extraction costs, renewable energy costs, substitution possibilities and normative attitudes. Furthermore, we show that small deviations from the second-best subsidy can lead to strong increases in emissions and consumption losses. This confirms the rising concerns about the occurrence of unintended side effects of climate policy { a new version of the green paradox. We extend our second-best analysis by considering two further types of policy instruments: (1) temporary subsidies that are displaced by carbon pricing in the long run and (2) revenue-neutral instruments like a carbon trust and a feed-in-tariff scheme. Although these instruments cause small welfare losses, they have the potential to ease distributional conflicts as they lead to lower energy prices and higher fossil resource rents than the optimal carbon pricing policy.
Subjects:Feed-in-Tariff
Carbon Trust
Carbon Pricing
Supply-Side Dynamics
Green Paradox
Climate Policy
JEL:Q4
Q52
Q54
Q58
D58
H21
Document Type:Working Paper
Appears in Collections:FEEM Working Papers, Fondazione Eni Enrico Mattei

Files in This Item:
File Description SizeFormat
664536514.pdf650.75 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/53216

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.