Kiel Working Papers, Kiel Institute for World Economics
No 1689:
Subsidies for Renewable Energies in the Presence of Learning Effects and Market Power
Johanna Reichenbach and Till Requate
Abstract: We study the impact of learning by doing, learning
spill-overs, and imperfect competition in a model with two types of
electricity producers, an oligopolistic sector of polluting fossil-fuel
utilities and a competitive fringe of non-polluting generators of
electricity from renewable energy sources (RES-E). Furthermore we consider
an upstream industry of RES-E equipment producers engaged in learning by
doing. We show that a first-best policy requires two instruments, a tax in
the fossil-fuel sector and an output subsidy for RES-E equipment producers.
We then study second-best-optimal feed-in tariffs that are paid to the
generators of RES-E. By means of simulations we calculate the welfare loss
of a second-best-optimal feed-in-tariff policy and analyze how market
structure impacts on second-best-optimal feed-in tariffs
Keywords: feed-in tariffs; environmental subsidies; learning by doing; spill-overs; market structure; (follow links to similar papers)
JEL-Codes: Q42,; L13,; O38; (follow links to similar papers)
48 pages, March 2011
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