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The Economic Cost of Carbon Abatement with Renewable Energy Policies

Jan Abrell, Mirjam Kosch () and Sebastian Rausch
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Mirjam Kosch: ETH Zurich, Switzerland

No 17/273, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: This paper exploits the randomness and exogeneity of weather conditions to identify the economic cost of decarbonization through renewable energy (RE) support policies. We find that both the aggregate cost and the distribution of cost between energy producers and consumers vary significantly depending on which type of RE technology is promoted reflecting substantial heterogeneity in production cost, temporal availability of natural resources, and market conditions (i.e., time-varying demand, carbon intensity of installed production capacities, and opportunities for cross-border trade). We estimate that the cost for reducing one ton of CO2 emissions through subsidies for solar are EUR 500-1870. Subsidizing wind entails significantly lower cost, which can even be slightly negative, ranging from EUR 5-230. While the economic rents for energy producers always decrease, consumers incur three to five times larger costs when solar is promoted but gain under RE policies promoting wind.

Keywords: Decarbonization; Renewable Energy Policies; Wind; Solar; Electricity; Economic Cost; Distributional impacts (search for similar items in EconPapers)
JEL-codes: C01 L94 Q28 Q48 Q54 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2017-06
New Economics Papers: this item is included in nep-ene, nep-env, nep-eur, nep-reg and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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