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Second-best analysis of European energy policy: Is one bird in the hand worth two in the bush?

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  • Hübler, Michael
  • Schenker, Oliver
  • Fischer, Carolyn

Abstract

This paper studies policy instruments that correct insufficient learning-by-doing (LbD) and research and development (R&D) of renewable electricity technologies and insufficient investments in energy efficiency (EE) in the presence of carbon pricing. The theoretical model analysis shows how to re-adjust the first-best in second-best situations, in which one of the policy instruments is restricted. Calibrated to the European power sector, the first-best choice of all instruments reduces the climate policy cost by one third. Feed-in tariffs turn out to be good substitutes for LbD, but not for R&D or EE subsidies.

Suggested Citation

  • Hübler, Michael & Schenker, Oliver & Fischer, Carolyn, 2015. "Second-best analysis of European energy policy: Is one bird in the hand worth two in the bush?," ZEW Discussion Papers 15-079, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:15079
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    References listed on IDEAS

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    Cited by:

    1. Carolyn Fischer, 2017. "Environmental Protection for Sale: Strategic Green Industrial Policy and Climate Finance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 553-575, March.
    2. Fischer, Carolyn, 2016. "Strategic Subsidies for Green Goods," RFF Working Paper Series dp-16-12, Resources for the Future.

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    More about this item

    Keywords

    second-best; climate policy; energy policy; feed-in tariff; power sector; EU;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • 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
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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