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Reconciling Emissions Trading and the Promotion of Renewable Energy

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  • Sebastian Schaefer

    (University of Siegen)

Abstract

The EU emissions trading system (ETS) and the promotion of renewable energy are overlapping regulations. Although the resulting early development of renewables is associated with several advantages such an overlap may violate the path of optimal abatement. Subsidies may cause a too high share of renewables in electricity generation. This results in additional expenses and efficiency losses. We develop a control mechanism serving as thumb rule to limit additional expenses. Under optimal implementation the rule signicantly restricts additional expenses to a maximum of about 4 % of total abatement costs in worst case. This result holds for marginal abatement costs (MAC) approximated by any conical combination of weak convex power functions. This means high exibility of MAC leading to high validity of the results. Consequences of a non-optimal implementation of the mechanism are examined as well. An empirical application to German data shows that the promotion of renewable energy has not yet violated the path of optimal abatement. However, data is restricted because the ETS has not induced an additional emission reduction since 2010.

Suggested Citation

  • Sebastian Schaefer, 2018. "Reconciling Emissions Trading and the Promotion of Renewable Energy," MAGKS Papers on Economics 201836, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201836
    as

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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2018/36-2018_schaefer.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Overlapping Regulations; Promotion of Renewable Energy; Emissions Trading;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • 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
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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