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Climate Policies with Pollution Externalities and Learning Spillovers

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  • Lehmann, Paul

Abstract

Economic theory suggests that with a pollution externality and learning spillovers related to renewable energy technologies, the optimal climate policy mix includes an emissions policy and an output subsidy to the learning industry. Instead of output subsidies, feed-in tariffs are often implemented in addition to emissions policies. This paper reveals that this policy mix may theoretically provide for a first-best outcome as well. However, its efficient design may be cumbersome for regulators. An emissions tax must be below the Pigovian level and differentiate between fossil fuels. Moreover, both tax and feed-in tariff must be adapted continuously.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21353.

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Date of creation: Oct 2009
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Handle: RePEc:pra:mprapa:21353

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Keywords: emissions tax; feed-in tariffs; policy mix; spillovers; learning by doing;

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  1. Bläsi, Albrecht & Requate, Till, 2005. "Learning-by-Doing with Spillovers in Competitive Industries, Free Entry, and Regulatory Policy," Economics Working Papers 2005,09, Christian-Albrechts-University of Kiel, Department of Economics.
  2. Patrik Söderholm & Ger Klaassen, 2007. "Wind Power in Europe: A Simultaneous Innovation–Diffusion Model," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(2), pages 163-190, February.
  3. Isoard, Stephane & Soria, Antonio, 2001. "Technical change dynamics: evidence from the emerging renewable energy technologies," Energy Economics, Elsevier, vol. 23(6), pages 619-636, November.
  4. Newell, Richard & Wilson, Nathan, 2005. "Technology Prizes for Climate Change Mitigation," Discussion Papers dp-05-33, Resources For the Future.
  5. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
  6. Neij, Lena, 1997. "Use of experience curves to analyse the prospects for diffusion and adoption of renewable energy technology," Energy Policy, Elsevier, vol. 25(13), pages 1099-1107, November.
  7. Madlener, Reinhard & Stagl, Sigrid, 2005. "Sustainability-guided promotion of renewable electricity generation," Ecological Economics, Elsevier, vol. 53(2), pages 147-167, April.
  8. Menanteau, Philippe & Finon, Dominique & Lamy, Marie-Laure, 2003. "Prices versus quantities: choosing policies for promoting the development of renewable energy," Energy Policy, Elsevier, vol. 31(8), pages 799-812, June.
  9. Bläsi, Albrecht & Requate, Till, 2007. "Subsidies for Wind Power: Surfing down the Learning Curve?," Economics Working Papers 2007,28, Christian-Albrechts-University of Kiel, Department of Economics.
  10. Neij, L, 1999. "Cost dynamics of wind power," Energy, Elsevier, vol. 24(5), pages 375-389.
  11. Jørgen Hansen & Camilla Jensen & Erik Madsen, 2003. "The establishment of the danish windmill industry—Was it worthwhile?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 139(2), pages 324-347, June.
  12. Argote, L. & Epple, D., 1990. "Learning Curves In Manufacturing," GSIA Working Papers 89-90-02, Carnegie Mellon University, Tepper School of Business.
  13. Junginger, M. & Faaij, A. & Turkenburg, W. C., 2005. "Global experience curves for wind farms," Energy Policy, Elsevier, vol. 33(2), pages 133-150, January.
  14. Irwin, Douglas A & Klenow, Peter J, 1994. "Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1200-1227, December.
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Cited by:
  1. Joan Canton & �sa Johannesson Lind�n, 2010. "Support schemes for renewable electricity in the EU," European Economy - Economic Papers 408, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Lehmann, Paul & Gawel, Erik, 2013. "Why should support schemes for renewable electricity complement the EU emissions trading scheme?," Energy Policy, Elsevier, vol. 52(C), pages 597-607.
  3. Marco Runkel & Thomas Eichner, 2010. "Subsidizing Renewable Energy under Capital Mobility," FEMM Working Papers 100020, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  4. Eichner, Thomas & Pethig, Rüdiger, 2014. "International carbon emissions trading and strategic incentives to subsidize green energy," Resource and Energy Economics, Elsevier, vol. 36(2), pages 469-486.

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