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Optimal Environmental Policies and Renewable Energy Investment in Electricity Markets

Author

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  • Wichsinee Wibulpolprasert
Abstract
Renewable electricity subsidies have been popular policy instruments to combat climate change because of their ability to offset emissions. This paper studies the long-run welfare benefits of optimizing the design of the existing renewable energy subsidy (the status quo) in the presence of heterogeneity in the offset emissions. In particular, I measure the welfare gain from differentiating renewable subsidies across location and time to reflect the environmental benefits from offseting emissions. I find that the welfare gain from differentiation is small compared to the gain already achieved under the status quo subsidy. In contrast, the optimal emissions tax yields much larger welfare gain because it engages in other cost-effective emissions abatement channels that renewable energy subsidies do not: namely, demand conservation and cross-plant fuel substitution.

Suggested Citation

  • Wichsinee Wibulpolprasert, 2016. "Optimal Environmental Policies and Renewable Energy Investment in Electricity Markets," PIER Discussion Papers 47, Puey Ungphakorn Institute for Economic Research.
    • Handle: RePEc:pui:dpaper:47
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    File URL: https://www.pier.or.th/files/dp/pier_dp_047.pdf
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    References listed on IDEAS

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    Cited by:

    1. Abrell, Jan & Rausch, Sebastian & Streitberger, Clemens, 2019. "The economics of renewable energy support," Journal of Public Economics, Elsevier, vol. 176(C), pages 94-117.

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    More about this item

    Keywords

    Climate Change; Renewable Energy; Emissions Tax; Renewable Subsidies; Electricity Market; Investment; Environmental Benefits; Marginal Emissions; Heterogeneity; Fuel Switching; Demand Response; Wind Resource;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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