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Strategic technology policy as a supplement to renewable energy standards

Author

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  • Fischer, Fischer
  • Greaker, Mads
  • Rosendahl, Knut Einar

    (School of Economics and Business, Norwegian University of Life Sciences)

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 su¢ ciently aggressive as to engender WTO disputes. We consider a downstream energy-using prod- uct 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 fail- ures (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 sup- pliers; each has tradeo¤s. Subsidies can o¤set underprovision upstream, but they allow dirty generation to expand when the portfolio standard becomes less binding. Downstream subsidies raise all upstream pro…ts 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 su¢ ciently undervalue global emissions, restricting the use of upstream subsidies can enhance welfare.

Suggested Citation

  • Fischer, Fischer & Greaker, Mads & Rosendahl, Knut Einar, 2016. "Strategic technology policy as a supplement to renewable energy standards," Working Paper Series 01-2016, Norwegian University of Life Sciences, School of Economics and Business.
  • Handle: RePEc:hhs:nlsseb:2016_001
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    References listed on IDEAS

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    Cited by:

    1. Patrice Bougette & Christophe Charlier, 2019. "Subsidies and Countervailing Measures in the EU Biofuel Industry: A Welfare Analysis," Post-Print halshs-02306022, HAL.
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    3. Gabriel E. Lade & C.-Y. Cynthia Lin Lawell, 2021. "The Design of Renewable Fuel Mandates and Cost Containment Mechanisms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(2), pages 213-247, June.
    4. Wang, Ying & Zhang, Dayong & Ji, Qiang & Shi, Xunpeng, 2020. "Regional renewable energy development in China: A multidimensional assessment," Renewable and Sustainable Energy Reviews, Elsevier, vol. 124(C).

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    More about this item

    Keywords

    Strategic technology policy; Renewable energy standard; Upstream technology market;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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