Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229491
Authors: 
Bialek, Sylwia
Unel, Burcin
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8673
Abstract: 
We evaluate the effects of homogeneous subsidies granted for emission-free electricity generation on market outcomes and social welfare. We use an analytical model to assess the conditions under which such subsidies increase efficiency of wholesale energy and capacity markets. While the subsidies, even when combined with energy consumption taxes, cannot achieve first-best outcomes when there are resources with heterogeneous emission intensities, there exists a range of subsidy rates that are welfare-enhancing when greenhouse gas externalities are taken into account. We also derive the conditions under which generation subsidies do not affect the equilibrium price in capacity markets. Finally, we evaluate the capacity market reforms that are being undertaken in the U.S. in response to these kinds of subsidies.
Subjects: 
capacity markets
renewables
subsidies
welfare
JEL: 
Q28
Q42
Q58
Q41
Document Type: 
Working Paper

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