Tax on emissions or subsidy to renewables? Evaluating the effects on the economy and on the environment

Susana Silva, Isabel Soares and Oscar Afonso

Applied Economics Letters, 2016, vol. 23, issue 10, 690-694

Abstract: We examine the relationship between the economy and the environment in a model where production uses nonpolluting renewable and polluting nonrenewable resources. There is policy intervention through a tax on emissions and a subsidy to renewables extraction/production. Results show that both instruments are able to decrease emissions intensity of output. However, when used together, the desired effect is higher. Empirically it is shown that the subsidy achieves higher renewables intensity and although present emissions per output are similar for both instruments, the subsidy achieves lower future levels.

Date: 2016
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DOI: 10.1080/13504851.2015.1100243

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