The Efficiency and Sectoral Distributional Implications of Large-Scale Renewable Policies

Renewable policies have grown in popularity across states in the US, and worldwide. The costs and benefits from renewable policies are unevenly distributed across several margins. The incidence of alternative designs varies substantially across producers and consumers, across types of producers, across types of consumers, and across regions. In particular, the efficiency and distributional implications of large-scale policies crucially depend on the design of wholesale policies and how targets are set, but also on how the costs of such policies are passed-through to consumers. Given that renewable costs are mostly non-marginal, due to the large presence of fixed costs, there are many different ways to implement these policies on both the environmental design and retail pass-through margins. Using data from the California electricity market, I develop a model to illustrate the interaction between large-scale renewable policies (carbon taxes, feed-in tariffs, production subsidies and renewable portfolio standards) and their pricing to final consumers under alternative retail pricing schemes (no pass-through, marginal fees, fixed flat tariffs and Ramsey pricing). I focus on the trade-off between charging residential versus industrial consumers to highlight tensions between efficiency, distributional and environmental objectives.