The Impact of Carbon Prices on Renewable Energy Support

Jan Abrell and Mirjam Kosch

Journal of the Association of Environmental and Resource Economists, 2022, vol. 9, issue 3, 531 - 563

Abstract: We examine how optimal renewable energy (RE) support policies need to be adjusted to account for carbon prices. We show theoretically and empirically that changing carbon prices requires adjusting RE subsidies due to two motives. First, RE premiums need to be reduced to reflect the carbon value embedded in the market price. Second, once a coal to gas switch occurs, RE premiums and feed-in tariffs need to be adjusted to account for changes in the marginal external benefit of RE. We use empirical estimations and numerical simulation models to quantify these effects for the United Kingdom. We show that the second effect is empirically small, whereas the first effect requires to completely phase-out RE premiums with increasing carbon prices. Finally, a fuel switch increases solar-induced abatement, whereas wind-induced abatement is rather invariant to a fuel switch. Yet, the differentiation of optimal subsidies between wind and solar power is modest.

Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://dx.doi.org/10.1086/717417 (application/pdf)
http://dx.doi.org/10.1086/717417 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jaerec:doi:10.1086/717417

Access Statistics for this article

More articles in Journal of the Association of Environmental and Resource Economists from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().