Increasing marginal costs and the efficiency of differentiated feed-in tariffs

Kira Lancker and Martin Quaas

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: We study optimal subsidies for renewable energy (RE) generation to internalize external benefits from intertemporal learning-by-doing spillovers, taking into account increasing marginal costs at the industry level due to limited availability of sites suitable for RE. We find that the optimal RE subsidy is differentiated according to productivity and derive a condition on production and spillovers under which less efficient, i.e. more costly, technologies should receive higher support, as common in actual policy-making. We show that such a support of technological diversification is optimal if (i) the elasticity of learning by doing is large, which means that technologies rapidly mature with little further scope for learning, and if (ii) productive sites are scarce, which limits future utilization of knowledge.

Keywords: learning spillovers; subsidies; industrial policy; renewable energy; feed-in-tariffs; differentiation (search for similar items in EconPapers)
JEL-codes: D21 D24 D62 D83 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Journal Article: Increasing marginal costs and the efficiency of differentiated feed-in tariffs (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203641

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