Optimal Environmental Policies and Renewable Energy Investment in Electricity Markets

Wichsinee Wibulpolprasert

No 47, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: Renewable electricity subsidies have been popular policy instruments to combat climate change because of their ability to offset emissions. This paper studies the long-run welfare benefits of optimizing the design of the existing renewable energy subsidy (the status quo) in the presence of heterogeneity in the offset emissions. In particular, I measure the welfare gain from differentiating renewable subsidies across location and time to reflect the environmental benefits from offseting emissions. I find that the welfare gain from differentiation is small compared to the gain already achieved under the status quo subsidy. In contrast, the optimal emissions tax yields much larger welfare gain because it engages in other cost-effective emissions abatement channels that renewable energy subsidies do not: namely, demand conservation and cross-plant fuel substitution.

Keywords: Climate Change; Renewable Energy; Emissions Tax; Renewable Subsidies; Electricity Market; Investment; Environmental Benefits; Marginal Emissions; Heterogeneity; Fuel Switching; Demand Response; Wind Resource (search for similar items in EconPapers)
JEL-codes: H23 L10 Q5 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2016-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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