Subsidizing Renewable Energy under Capital Mobility

Thomas Eichner and Marco Runkel (marco.runkel@tu-berlin.de)

No 3185, CESifo Working Paper Series from CESifo

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 inflicted on other countries and since the emissions tax leads to a capital outflow 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 beneficial 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)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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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:ces:ceswps:_3185

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