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Feed-in Subsidies, Taxation, and Inefficient Entry

Author

Listed:
  • Fabio Antoniou

    (Humboldt-Universität zu Berlin)

  • Roland Strausz

    (Humboldt-Universität zu Berlin)

Abstract

We study (energy) markets with dirty production and lumpy entry costs of clean production (renewables). For intermediate entry costs, markets yield inefficient production and inefficient entry. A mix of three popular regulatory instruments—polluter taxation, feed-in subsidies for renewables, and consumption taxation—cannot correct these market failures for larger entry costs. The instruments are imperfect because they affect marginal incentives, whereas entry is a lumpy fixed cost problem. Whenever the first best is implementable, feed-in subsidies and consumption taxes are redundant. The second best requires feed-in subsidies or consumption taxes in addition to a pollution tax and overshoots first best levels. Given production levels, the instruments do not affect the regulator’s budget.

Suggested Citation

  • Fabio Antoniou & Roland Strausz, 2017. "Feed-in Subsidies, Taxation, and Inefficient Entry," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 925-940, August.
    • Handle: RePEc:kap:enreec:v:67:y:2017:i:4:d:10.1007_s10640-016-0012-8
    DOI: 10.1007/s10640-016-0012-8
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    2. Carsten Helm & Mathias Mier, 2020. "Steering the Energy Transition in a World of Intermittent Electricity Supply: Optimal Subsidies and Taxes for Renewables Storage," ifo Working Paper Series 330, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Carsten Helm & Mathias Mier, 2018. "Subsidising Renewables but Taxing Storage? Second-Best Policies with Imperfect Pricing," Working Papers V-413-18, University of Oldenburg, Department of Economics, revised Oct 2018.
    4. Rickels, Wilfried & Peterson, Sonja & Felbermayr, Gabriel, 2019. "Schrittweise zu einem umfassenden europäischen Emissionshandel," Kiel Policy Brief 127, Kiel Institute for the World Economy (IfW Kiel).
    5. Bialek, Sylwia & Ünel, Burçin, 2022. "Efficiency in wholesale electricity markets: On the role of externalities and subsidies," Energy Economics, Elsevier, vol. 109(C).
    6. Helm, Carsten & Mier, Mathias, 2021. "Steering the energy transition in a world of intermittent electricity supply: Optimal subsidies and taxes for renewables and storage," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    7. de Simón-Martín, Miguel & Ciria-Garcés, Tomás & Rosales-Asensio, Enrique & González-Martínez, Alberto, 2022. "Multi-dimensional barrier identification for wind farm repowering in Spain through an expert judgment approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 161(C).
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    9. Zhishuang Zhu & Hua Liao, 2019. "Do subsidies improve the financial performance of renewable energy companies? Evidence from China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 95(1), pages 241-256, January.
    10. Alexander Haupt, 2023. "Environmental Policy and Renewable Energy in an Imperfectly Competitive Market," CESifo Working Paper Series 10524, CESifo.
    11. Rickels, Wilfried & Rischer, Christian & Schenuit, Felix & Peterson, Sonja, 2023. "Potential efficiency gains from the introduction of an emissions trading system for the buildings and road transport sectors in the European Union," Kiel Working Papers 2249, Kiel Institute for the World Economy (IfW Kiel).
    12. Zhao, Ge & Zhou, P. & Wen, Wen, 2021. "Feed-in tariffs, knowledge stocks and renewable energy technology innovation: The role of local government intervention," Energy Policy, Elsevier, vol. 156(C).
    13. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2019. "On the Principles of Commodity Taxation under Interregional Externalities," University of Cyprus Working Papers in Economics 03-2019, University of Cyprus Department of Economics.
    14. Rickels, Wilfried & Merk, Christine & Honneth, Johannes & Schwinger, Jörg & Quaas, Martin & Oschlies, Andreas, 2019. "Welche Rolle spielen negative Emissionen für die zukünftige Klimapolitik?," Open Access Publications from Kiel Institute for the World Economy 261840, Kiel Institute for the World Economy (IfW Kiel).
    15. Rickels, Wilfried & Merk, Christine & Honneth, Johannes & Schwinger, Jörg & Quaas, Martin F. & Oschlies, Andreas, 2019. "Welche Rolle spielen negative Emissionen für die zukünftige Klimapolitik? Eine ökonomische Einschätzung des 1,5°C-Sonderberichts des Weltklimarats," Kiel Working Papers 2116, Kiel Institute for the World Economy (IfW Kiel).
    16. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2022. "Tax competition in the presence of environmental spillovers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(3), pages 600-626, June.
    17. Helm, Carsten & Mier, Mathias, 2019. "Subsidising Renewables but Taxing Storage? Second-Best Policies with Imperfect Carbon Pricing," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203539, Verein für Socialpolitik / German Economic Association.
    18. Rickels, Wilfried & Proelß, Alexander & Geden, Oliver & Burhenne, Julian & Fridahl, Mathias, 2020. "The future of (negative) emissions trading in the European Union," Kiel Working Papers 2164, Kiel Institute for the World Economy (IfW Kiel).
    19. Fridahl, Mathias & Möllersten, Kenneth & Lundberg, Liv & Rickels, Wilfried, 2024. "Potential and goal conflicts in reverse auction design for bioenergy with carbon capture and storage (BECCS)," Open Access Publications from Kiel Institute for the World Economy 306863, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Taxation; Feed-in tariffs; Externalities; Renewables; Entry; Pollution;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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