The Implicit Carbon Price of Renewable Energy: Incentives in Germany

Marcantonini, Claudio; Ellerman, A. Denny

doi:10.2139/ssrn.2406873

Cited by 26 publications

(20 citation statements)

References 19 publications

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“…Incorporating such positive effects would obviously play in favor of RE support policies. Second, these benefits would, however, have to be weighed against the additional system integration and back-up cost of intermittent RE generation (Borenstein, 2012;Marcantonini and Ellerman, 2014;Gowrisankaran, Reynolds and Samano, 2016). While it is beyond the scope of this paper to provide a comprehensive cost-benefit analysis, our estimates could be viewed as a first indication of how large the net benefits from other external effects would have to be to provide a rationale for decarbonization through RE support policies.…”

Section: Discussionmentioning

confidence: 99%

The economics of renewable energy support

Abrell

Rausch

Streitberger

2019

Journal of Public Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper uses theoretical and numerical economic equilibrium models to examine optimal renewable energy (RE) support policies for wind and solar resources in the presence of a carbon externality associated with the use of fossil fuels. We emphasize three main issues for policy design: the heterogeneity of intermittent natural resources, budget-neutral financing rules, and incentives for carbon mitigation. We find that differentiated subsidies for wind and solar, while being optimal, only yield negligible efficiency gains. Policies with smart financing of RE subsidies which either relax budget neutrality or use "polluter-pays-the-price" financing in the context of budget-neutral schemes can, however, approximate socially optimal outcomes. Our analysis suggests that optimally designed RE support policies do not necessarily have to be viewed as a costly second-best option when carbon pricing is unavailable. (JEL Q28, Q42, Q52, Q58, C61).

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Section: Discussionmentioning

confidence: 99%

The economics of renewable energy support

Abrell

Rausch

Streitberger

2019

Journal of Public Economics

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“…In addition to scientific progress, one of the main concerns is how to implement and promote new technologies and solutions politically. In this context, many countries have introduced "soft policies" (Carattini et al 2016), for instance, voluntary selfregulation ( Baranzini and Thalmann 2004;Ingold 2008) or traditional subsidies for renewable energies (Marcantonini and Ellerman 2014), which, however, are either not effective enough in terms of goal attainment or financially very expensive. By contrast, incentive-based steering mechanisms (e.g., incentives or environmental taxes) are widely acknowledged to be the most effective and economically efficient instruments, since they generate continuous and long-term incentives for environmentally friendly innovation and practices (Baranzini et al 2015;Carattini et al 2016;Deroubaix and Lévèque 2006;Jaffe et al 2002;Mauch et al 1992;Perry and Williams 1999;Rausch and Karplus 2014;Vollebergh 2007).…”

Section: Introductionmentioning

confidence: 99%

The unpopularity of incentive-based instruments: what improves the cost–benefit ratio?

Stadelmann‐Steffen

Dermont

2018

Public Choice

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Whereas ecological economists argue strongly in favor of incentive-based approaches to promote renewable energy sources and reduce energy consumption, those instruments have been shown to be particularly difficult to implement politically. We begin with a recognition that cost perceptions that inherently characterize incentive-based policy instruments are a fundamental reason for their unpopularity. We therefore argue that the crucial question that policymakers need to address is how the benefit-cost ratios of incentive-based instruments can be altered in ways such that their inherent costs become acceptable. By focusing on the various features of these instruments, we propose three strategies for answering this question theoretically: objectively reduce the costs, reduce the visibility of the costs, and identify compensation strategies, i.e., strengthen the benefit side of the equation. Based on a conjoint analysis for Switzerland, our results demonstrate that reducing objective and perceived costs may indeed strengthen support for incentive-based policy instruments, whereas cost compensation does not seem to work as well. We show, moreover, that the latter can be explained by the fact that substantial numbers of voters do not understand or are not convinced by the commonly proposed mechanism of environmental taxes. Given that voters do not believe in the usefulness and efficacy of incentivebased policy measures, no cost compensation is feasible.

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“…Learning rates may also be asymmetric across RE technologies (Rubin et al, 2015). These benefits, however, have to be weighed against the additional integration and back-up cost of intermittent RE generation (Borenstein, 2012;Marcantonini and Ellerman, 2014). While it is beyond the scope of this paper to provide a comprehensive cost-benefit analysis, our estimates of the direct economic cost could be viewed as a first indication of how large the net benefits from other external effects would have to be to provide a rationale for decarbonization through RE support policies.…”

Section: Discussionmentioning

confidence: 99%

“…For the US context, Callaway, Fowlie and McCormick (2017) provide an ex-post analysis of marginal abatement costs of energy efficiency measures and RE sources using hourly emissions data and Johnson (2014) estimates the abatement costs of a renewable portfolio standard. Marcantonini and Ellerman (2014) and Marcantonini and Valero (2017) rely on counterfactual analysis using numerical simulation models to assess the cost of carbon abatement induced by RES mechanisms for Germany and Italy, respectively. Böhringer, Landis and Reanos (2017) assess distributional impacts of RE promotion in Germany using ex-ante policy analysis based on a numerical general equilibrium model.…”

Section: June 2017mentioning

confidence: 99%

The Economic Cost of Carbon Abatement with Renewable Energy Policies

Abrell¹,

Kosch

2017

SSRN Journal

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1 As of 2016, about 110 jurisdictions worldwide-at the national or sub-national level-had enacted feed-in policies for wind and solar power, making this the most widely adopted regulatory mechanism to promote renewable power (REN, 2016). In the United States, the federal government provides sizable production and investment tax credits for renewables and more than half of the states have adopted renewable portfolio standards mandating minimum levels of renewable generation (U.S. Department of Energy, 2016). The Renewable Energy Directive by the European Commission (2010) established an overall policy for the production and promotion of energy from renewable sources in the EU requiring to fulfil at least 20 % of its total energy needs with renewables by 2020; a new regionally binding target seeks to increase this share to 27 % by 2030. In implementing these goals, many of the EU countries have heavily relied on feed-in tariffs and tendering mechanisms for electricity generated from wind and solar power. 1 2 and socially equitable manner, it is critical to understand the market impacts of policy-induced increases in renewable energy (RE) supply. The increase of RE supply generally has two effects on electricity markets. First, it replaces conventional by RE generation, which we refer to as the replacement effect. If fossil fuel technologies are replaced, this leads to lower CO 2 emissions in power generation. Second, as generators with high marginal cost are pushed out of the market, the wholesale electricity price decreases, which we refer to as the price effect. This unambiguously lowers profits (i.e., capacity rents) for energy producers that use conventional energy technologies. Consumers, however, may gain or lose overall because they benefit from lower energy prices but also face higher costs to the extent that RE subsidies are re-financed through taxes on electricity demand. While the theoretical mechanisms for the impacts of RES policies on electricity markets are well understood, an empirical analysis is needed to shed light on the following questions that are central to public policy-making in the domain of carbon mitigation and climate change: Which fossil fuels and how much are replaced if RE supply from wind and solar resources increases? What are the impacts on CO 2 emissions? What are the economic costs of reducing CO 2 emissions through promoting energy supply from RE sources? And how are these costs distributed among energy producers and consumers? Despite the fundamental importance of these questions for designing public interventions to reduce fossil fuel use, surprisingly little is known about the market impacts of RE support schemes in terms of an ex-post policy assessment. 2 This paper develops an empirical quantitative framework to quantify the cost of carbon abatement through RES policies for wind and solar. 3 Besides estimating aggregate cost, we also focus on the incidence of cost between energy producers and consumers. To identify the impacts of RES policies, we exploit the randomness and...

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The Implicit Carbon Price of Renewable Energy: Incentives in Germany

Abstract: The opinions expressed in this paper are those of the author(s) and do not represent the views of the European University Institute or any of its subsidiary components or those of the European Commission.

Cited by 26 publications

References 19 publications

The economics of renewable energy support

The economics of renewable energy support

The unpopularity of incentive-based instruments: what improves the cost–benefit ratio?

The Economic Cost of Carbon Abatement with Renewable Energy Policies

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