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The Economic Cost of Carbon Abatement with Renewable Energy Policies

Author

Listed:
  • Jan Abrell

    () (ETH Zurich, Switzerland)

  • Mirjam Kosch

    () (ETH Zurich, Switzerland)

  • Sebastian Rausch

    () (ETH Zurich, Switzerland)

Abstract

This paper exploits the randomness and exogeneity of weather conditions to identify the economic cost of decarbonization through renewable energy (RE) support policies. We find that both the aggregate cost and the distribution of cost between energy producers and consumers vary significantly depending on which type of RE technology is promoted reflecting substantial heterogeneity in production cost, temporal availability of natural resources, and market conditions (i.e., time-varying demand, carbon intensity of installed production capacities, and opportunities for cross-border trade). We estimate that the cost for reducing one ton of CO2 emissions through subsidies for solar are EUR 500-1870. Subsidizing wind entails significantly lower cost, which can even be slightly negative, ranging from EUR 5-230. While the economic rents for energy producers always decrease, consumers incur three to five times larger costs when solar is promoted but gain under RE policies promoting wind.

Suggested Citation

  • Jan Abrell & Mirjam Kosch & Sebastian Rausch, 2017. "The Economic Cost of Carbon Abatement with Renewable Energy Policies," CER-ETH Economics working paper series 17/273, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:17-273
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    File URL: https://www.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-17-273.pdf
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    References listed on IDEAS

    as
    1. Malaguzzi-Valeri, Laura & di Cosmo, Valeria, 2014. "The Effect of Wind on Electricity CO2 Emissions: The Case of Ireland," Papers WP493, Economic and Social Research Institute (ESRI).
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    3. Lawrence H. Goulder & Marc A. C. Hafstead & Roberton C. Williams III, 2016. "General Equilibrium Impacts of a Federal Clean Energy Standard," American Economic Journal: Economic Policy, American Economic Association, vol. 8(2), pages 186-218, May.
    4. Wichsinee Wibulpolprasert, 2016. "Optimal Environmental Policies And Renewable Energy Investment: Evidence From The Texas Electricity Market," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 7(04), pages 1-41, November.
    5. Kevin Novan, 2015. "Valuing the Wind: Renewable Energy Policies and Air Pollution Avoided," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 291-326, August.
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    7. Abrell, Jan & Rausch, Sebastian, 2016. "Cross-country electricity trade, renewable energy and European transmission infrastructure policy," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 87-113.
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    Cited by:

    1. Mar Reguant, 2018. "The Efficiency and Sectoral Distributional Implications of Large-Scale Renewable Policies," NBER Working Papers 24398, National Bureau of Economic Research, Inc.
    2. Kenneth Gillingham & James H. Stock, 2018. "The Cost of Reducing Greenhouse Gas Emissions," Journal of Economic Perspectives, American Economic Association, vol. 32(4), pages 53-72, Fall.

    More about this item

    Keywords

    Decarbonization; Renewable Energy Policies; Wind; Solar; Electricity; Economic Cost; Distributional impacts;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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