Subsidizing Renewable Energy under Capital Mobility

Marco Runkel () and Thomas Eichner ()
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Thomas Eichner: Department of Economics, University of Hagen

No 100020, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: This paper provides a rationale for subsidizing green (renewable) energy production. Within a multi-country model where energy is produced with mobile capital in green and dirty production, we investigate the countries' decentralized choice of emissions taxes and green energy subsidies. Without green subsidies, the emissions tax is set inefficiently low, since each country ignores the environmental externality in icted on other countries and since the emissions tax leads to a capital out ow to other countries. When the green subsidy is available, countries choose a positive subsidy rate since this reduces the overall distortion of the tax-subsidy system. In doing so, each country internalizes a larger part of the environmental externality. As consequence capital is relocated from the dirty into the clean sectors and reduces global pollution. Hence, the subsidy is not only bene cial for the country which imposes it but for all countries.

Keywords: renewable energy; capital mobility; green subsidy; emissions regulation (search for similar items in EconPapers)
JEL-codes: H71 Q42 Q58 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2010-09
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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http://www.fww.ovgu.de/fww_media/femm/femm_2010/2010_20.pdf First version, 2010 (application/pdf)

Related works:
Journal Article: Subsidizing renewable energy under capital mobility (2014)
Working Paper: Subsidizing Renewable Energy under Capital Mobility (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:mag:wpaper:100020

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