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Subsidies for Learning in Renewable Energy Technologies under Market Power and Emission Trading

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  • Thure Traber
  • Claudia Kemfert

Abstract

Under perfect competition on the output market, first best technology subsidies in the presence of learning by doing are justified by knowledge spill overs that are not accounted for by individual companies. First best output subsidies are thus depending directly on the learning effects and are, if applicable, positive. Considering electricity markets, a setting of imperfect competition is more appropriate. We show that the second best output subsidy for learning by doing in renewable energies takes the market distortion due to imperfect competition into account and is of ambiguous sign. Based on simulations with a European electricity market model, we find that second best renewable energy subsidies are positive and only insignificantly impacted by market power. By contrast, the welfare gains from an optimal subsidy are considerably higher compared to a hypothetical situation of perfect competition.

Suggested Citation

  • Thure Traber & Claudia Kemfert, 2011. "Subsidies for Learning in Renewable Energy Technologies under Market Power and Emission Trading," Discussion Papers of DIW Berlin 1126, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1126
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.372618.de/dp1126.pdf
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    References listed on IDEAS

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    1. van der Zwaan, B. C. C. & Gerlagh, R. & G. & Klaassen & Schrattenholzer, L., 2002. "Endogenous technological change in climate change modelling," Energy Economics, Elsevier, vol. 24(1), pages 1-19, January.
    2. 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.
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    Cited by:

    1. Langestraat, R., 2013. "Environmental policies in competitive electricity markets," Other publications TiSEM 8c1d6907-e2ab-40ea-abcc-7, Tilburg University, School of Economics and Management.

    More about this item

    Keywords

    energy policy; renewable energy; learning by doing; imperfect competition; emission trading;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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