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Subsidies for renewable energies in the presence of learning effects and market power

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  • Reichenbach, Johanna
  • Requate, Till

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.

Suggested Citation

  • Reichenbach, Johanna & Requate, Till, 2011. "Subsidies for renewable energies in the presence of learning effects and market power," Kiel Working Papers 1689, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1689
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    More about this item

    Keywords

    Feed-in tariffs; environmental subsidies; learning by doing; spill-overs; market structure;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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