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Addressing the Climate Problem: Choice between Allowances, Feed-in Tariffs and Taxes

Author

Listed:
  • Eirik S. Amundsen
  • Peder Andersen
  • Jørgen Birk Mortensen

Abstract

Instruments chosen to pursue climate related targets are not always efficient. In this paper we consider an economy with three climate related targets for its electricity generation: a given share of “green” electricity, a given expansion of “green” electricity, and a given reduction of “black” (fossil based) electricity. At its disposal the country has three instruments: an allowance system (tradable green certificates), a subsidy system (feed-in tariffs) and a Pigouvian fossil tax. Each of these instruments may be used to attain any of the given targets. Within the setting of the model it is verified that each kind of the target has only a single efficient instrument under certainty, and that there is a deadweight loss of using other instruments to achieve the target. Similarly, there is also an analysis of instrument choice when several targets are to be attained at the same time. The paper also discusses the case of simultaneous targets as well as the relevance of the various targets.

Suggested Citation

  • Eirik S. Amundsen & Peder Andersen & Jørgen Birk Mortensen, 2018. "Addressing the Climate Problem: Choice between Allowances, Feed-in Tariffs and Taxes," CESifo Working Paper Series 6926, CESifo.
    • Handle: RePEc:ces:ceswps:_6926
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp6926.pdf
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    References listed on IDEAS

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    Cited by:

    1. Yang, Zhiqing & Liang, Jing, 2023. "The environmental and economic impacts of phasing out cross-subsidy in electricity prices: Evidence from China," Energy, Elsevier, vol. 284(C).
    2. Heimvik, Arild & Amundsen, Eirik S., 2019. "Prices vs. percentages: Use of tradable green certificates as an instrument of greenhouse gas mitigation," Working Papers in Economics 1/19, University of Bergen, Department of Economics.
    3. Arild Heimvik & Eirik S. Amundsen, 2019. "Prices vs. percentages: use of tradable green certificates as an instrument of greenhouse gas mitigation," CESifo Working Paper Series 7521, CESifo.

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    More about this item

    Keywords

    energy policy; green certificates; subsidies; Pigouvian taxes; climate change;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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