Environmental Policy and Renewable Energy in an Imperfectly Competitive Market

Alexander Haupt

No 10524, CESifo Working Paper Series from CESifo

Abstract: This paper analyses an electricity market in which a monopolist that employs fossil-fuel base-load and peak-load technologies competes against a fringe of renewable energy (RE) generators. The optimal technology and electricity mix can be decentralised by levying technology-dependent capacity taxes/subsidies in addition to technology-/state-dependent emission taxes. Whenever base-load capacity is taxed (subsidised), peak-load capacity is subsidised (taxed). A decline in RE capacity costs and an increase in the share of consumers on real-time prices predominantly raises emission taxes and brings them closer to their Pigouvian level, albeit with some qualifications. Capacity taxes/subsidies disappear when all consumers are on real-time prices and RE is about to fully crowd out conventional base-load capacity.

Keywords: intermittent renewable energy; peak-load technology; base-load technology; emission tax; capacity tax/subsidy (search for similar items in EconPapers)
JEL-codes: H23 L13 Q42 Q48 Q58 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10524

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