Environmental and Technology Policy Options in the Electricity Sector: Interactions and Outcomes

55 Pages Posted: 15 Jul 2014

See all articles by Carolyn Fischer

Carolyn Fischer

University of Ottawa - Department of Economics; Vrije Universiteit Amsterdam

Richard G. Newell

Duke University - Nicholas School of Environment; National Bureau of Economic Research (NBER); Resources for the Future

Louis Preonas

University of California, Berkeley - Department of Agricultural & Resource Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 15, 2014

Abstract

Myriad policy measures aim to reduce greenhouse gas emissions from the electricity sector, promote generation from renewable sources, and encourage energy conservation. To what extent do innovation and energy efficiency (EE) market failures justify additional interventions when a carbon price is in place? We extend the model of Fischer and Newell (2008) with advanced and conventional renewable energy technologies and short and long-run EE investments. We incorporate both knowledge spillovers and imperfections in the demand for energy efficiency. We conclude that some technology policies, particularly correcting R&D market failures, can be useful complements to emissions pricing, but ambitious renewable targets or subsidies seem unlikely to enhance welfare when placed alongside sufficient emissions pricing. The desirability of stringent EE policies is highly sensitive to the degree of undervaluation of EE by consumers, which also has implications for policies that tend to lower electricity prices Even with multiple market failures, emissions pricing remains the single most cost-effective option for reducing emissions.

Keywords: Climate Change, Cap-and-Trade, Renewable Energy, Portfolio Standards, Subsidies, Spillovers, Energy Efficiency, Electricity

JEL Classification: Q42, Q52, Q55, Q58

Suggested Citation

Fischer, Carolyn and Fischer, Carolyn and Newell, Richard G. and Preonas, Louis, Environmental and Technology Policy Options in the Electricity Sector: Interactions and Outcomes (July 15, 2014). FEEM Working Paper No. 067.2014, Available at SSRN: https://ssrn.com/abstract=2466268 or http://dx.doi.org/10.2139/ssrn.2466268

Carolyn Fischer (Contact Author)

University of Ottawa - Department of Economics ( email )

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Vrije Universiteit Amsterdam ( email )

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HOME PAGE: http://https://research.vu.nl/en/persons/carolyn-fischer

Richard G. Newell

Duke University - Nicholas School of Environment ( email )

Box 90228
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United States
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National Bureau of Economic Research (NBER) ( email )

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Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
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Louis Preonas

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

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