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Strategic Technology Policy as a Supplement to Renewable Energy Standards

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  • Carolyn Fischer
  • Mads Greaker
  • Knut Einar Rosendahl

Abstract

In many regions, renewable energy targets are a primary decarbonization policy. Most of the same jurisdictions also subsidize the manufacturing and/or deployment of renewable energy technologies, some being sufficiently aggressive as to engender WTO disputes. We consider a downstream energy-using product produced competitively but not traded across regions, such as electricity or transportation. A renewable energy technology is available, provided by a limited set of upstream suppliers who exercise market power. With multiple market failures (emissions externality and imperfect competition), renewable market share targets as the binding climate policy, and international trade in equipment, the stage is set to examine rationales for green industrial policy. Subsidies may be provided downstream to energy suppliers and/or upstream to technology suppliers; each has tradeoffs. Subsidies can offset underprovision upstream, but they allow dirty generation to expand when the portfolio standard becomes less binding. Downstream subsidies raise all upstream profits and crowd out foreign emissions. Upstream subsidies increase domestic upstream market share but expand emissions globally. In our two-region model, strategic subsidies chosen noncooperatively can be optimal from a global perspective, if both regions value emissions at the global cost of carbon. But if the regions sufficiently undervalue global emissions, restricting the use of upstream subsidies can enhance welfare.

Suggested Citation

  • Carolyn Fischer & Mads Greaker & Knut Einar Rosendahl, 2016. "Strategic Technology Policy as a Supplement to Renewable Energy Standards," CESifo Working Paper Series 5710, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5710
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp5710.pdf
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    References listed on IDEAS

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    2. John Stranlund, 1996. "On the strategic potential of technological aid in international environmental relations," Journal of Economics, Springer, vol. 64(1), pages 1-22, February.
    3. Fischer, Carolyn, 2016. "Strategic Subsidies for Green Goods," Discussion Papers dp-16-12, Resources For the Future.
    4. Carolyn Fischer, 2017. "Environmental Protection for Sale: Strategic Green Industrial Policy and Climate Finance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 553-575, March.
    5. Carolyn Fischer & Mads Greaker & Knut Einar Rosendahl, 2014. "Robust Policies against Emission Leakage: The Case for Upstream Subsidies," CESifo Working Paper Series 4742, CESifo Group Munich.
    6. Wolfgang Buchholz & Kai Konrad, 1994. "Global environmental problems and the strategic choice of technology," Journal of Economics, Springer, vol. 60(3), pages 299-321, October.
    7. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental Regulation and the Eco-Industry," Journal of Regulatory Economics, Springer, vol. 28(2), pages 141-155, September.
    8. Taylor, Margaret, 2008. "Beyond technology-push and demand-pull: Lessons from California's solar policy," Energy Economics, Elsevier, vol. 30(6), pages 2829-2854, November.
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    Cited by:

    1. Alfredo Alcayde & Francisco G. Montoya & Raul Baños & Alberto-Jesús Perea-Moreno & Francisco Manzano-Agugliaro, 2018. "Analysis of Research Topics and Scientific Collaborations in Renewable Energy Using Community Detection," Sustainability, MDPI, Open Access Journal, vol. 10(12), pages 1-17, November.

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    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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