The economics of renewable energy support

Arbeitspapier

This paper uses theoretical and numerical economic equilibrium models to examine optimal renewable energy (RE) support policies for wind and solar resources in the presence of a carbon externality associated with the use of fossil fuels. We emphasize three main issues for policy design: the heterogeneity of intermittent natural resources, budget-neutral financing rules, and incentives for carbon mitigation. We find that differentiated subsidies for wind and solar, while being optimal, only yield negligible efficiency gains. Policies with smart financing of RE subsidies which either relax budget neutrality or use "polluter-pays-the-price" financing in the context of budget-neutral schemes can, however, approximate socially optimal outcomes. Our analysis suggests that optimally designed RE support policies do not necessarily have to be viewed as a costly second-best option when carbon pricing is unavailable.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economics Working Paper Series ; No. 18/286

Classification and Topics

• Classification: Wirtschaft ; Renewable Resources and Conservation: Government Policy ; Alternative Energy Sources ; Pollution Control Adoption and Costs; Distributional Effects; Employment Effects ; Environmental Economics: Government Policy ; Optimization Techniques; Programming Models; Dynamic Analysis

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Abrell, Jan ; Rausch, Sebastian ; Streitberger, Clemens
• Event: Veröffentlichung
• (who): ETH Zurich, CER-ETH - Center of Economic Research
• (where): Zurich
• (when): 2018

Further information

• DOI: doi:10.3929/ethz-b-000248306
• Handle: http://hdl.handle.net/10419/179448
• Last update: 10.03.2025, 11:44 AM CET