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Renewable Electricity Policy and Market Integration

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Abstract

I analyze renewable electricity policy in a multinational electricity market with transmission investment. If national policy makers choose support schemes to maximize domestic welfare, then a trade policy motive arises operating independently of any direct benefit of renewable electricity. The model predicts electricity importing (exporting) countries to choose policies which reduce (increase) electricity prices. A narrow pursuit of domestic objectives distorts transmission investment, thereby market integration, below the efficient level. Distortions cannot be corrected by imposing national renewable targets alone. Instead, subsidies to transmission investment and a harmonization of and reduction in the number of policy instruments can improve welfare.

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  • Tangerås, Thomas, 2013. "Renewable Electricity Policy and Market Integration," Working Paper Series 968, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0968
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    More about this item

    Keywords

    Market integration; Renewable electricity; Trade policy; Transmission investment;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F15 - International Economics - - Trade - - - Economic Integration
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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