Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46393
Authors: 
Kalkuhl, Matthias
Edenhofer, Ottmar
Lessmann, Kai
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Energy and Climate Economics 3422
Abstract: 
We investigate conditions that aggravate market failures in energy innovations, and suggest optimal policy instruments to address them. Using an intertemporal general equilibrium model we show that 'small' market imperfections may trigger a several decades lasting dominance of an incumbent energy technology over a dynamically more efficient competitor, given that the technologies are very good substitutes. Such a 'lock-in' into an inferior technology causes significantly higher welfare losses than market failure alone, notably under ambitious mitigation targets. More than other innovative industries, energy markets are prone to these lock-ins because electricity from different technologies is an almost perfect substitute. To guide government intervention, we compare welfare-maximizing technology policies in addition to carbon pricing with regard to their efficiency, effectivity, and robustness. Technology quotas and feed-in-tariffs turn out to be only insignificantly less efficient than first-best subsidies and seem to be more robust against small perturbations.
Subjects: 
renewable energy subsidy
renewable portfolio standard
feed-in-tariffs
carbon pricing
JEL: 
O38
Q40
Q54
Q55
Document Type: 
Working Paper

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