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Promoting renewables and discouraging fossil energy consumption in the European Union

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Abstract

The European Union (EU) identified some positive and negative externalities related to energy production and consumption when adopting its Renewable Energy and Climate Change Package. Given these externalities, we derive the optimal combination of policy instruments. Thereafter, we explore the second-best outcome, given constraints on the use of some policy instruments, due to political considerations and international regulations. We show that the choice of policy instruments to promote renewable energy production (subsidies versus green certificates) affects the optimal level of energy consumption taxes. A second-best optimum for the EU cannot be achieved without a coordination of energy taxes and renewable energy policy instruments in each country, given the externalities addressed in this paper.

Suggested Citation

  • Cathrine Hagem, 2010. "Promoting renewables and discouraging fossil energy consumption in the European Union," Discussion Papers 610, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:610
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp610.pdf
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    Cited by:

    1. 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.

    More about this item

    Keywords

    climate policy; energy policy; green certificates; energy subsidies; energy ta;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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