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Effect of Combining Carbon Policies and Price Controls in Cross-Border Trade of Energy on Renewable Generation Investments

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  • Juan Carlos Muñoz
  • Sebastian Oliva H.
  • Enzo Sauma

Abstract

In this paper, we investigate the combined effect of carbon policies and price controls in cross-border trade of electricity on power generation investments. It has been shown that price controls in cross-border trade of electricity may negatively affect renewable energy investments. However, the assessment of the impact of the simultaneous adoption of carbon policies and energy price controls has still not been addressed. Assessing this interaction is important to find out whether carbon policies can offset the negative impact of price controls on renewable energy investments or not. Results show that carbon policies can partially offset the negative impact of price controls, and that cap-and-trade programs are more effective to prevent this negative impact than carbon taxes. On the other hand, high levels of carbon taxes combined with price control regulation may increase renewable capacity investments, but without completely offsetting the negative effect of the price controls.

Suggested Citation

  • Juan Carlos Muñoz & Sebastian Oliva H. & Enzo Sauma, 2024. "Effect of Combining Carbon Policies and Price Controls in Cross-Border Trade of Energy on Renewable Generation Investments," The Energy Journal, , vol. 45(1), pages 81-103, January.
    • Handle: RePEc:sae:enejou:v:45:y:2024:i:1:p:81-103
    DOI: 10.5547/01956574.45.1.jmun
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    References listed on IDEAS

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    1. Bushnell, James & Chen, Yihsu, 2012. "Allocation and leakage in regional cap-and-trade markets for CO2," Resource and Energy Economics, Elsevier, vol. 34(4), pages 647-668.
    2. Bertrand Rioux, Philipp Galkin, Frederic Murphy, and Axel Pierru, 2017. "How do Price Caps in Chinas Electricity Sector Impact the Economics of Coal, Power and Wind? Potential Gains from Reforms," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    3. Frederic Murphy & Axel Pierru & Yves Smeers, 2016. "A Tutorial on Building Policy Models as Mixed-Complementarity Problems," Interfaces, INFORMS, vol. 46(6), pages 465-481, December.
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    Cited by:

    1. Petitet, Marie & Felder, Frank A. & Elshurafa, Amro M., 2024. "Finding opportunity in economic power dispatch: Saving fuels without impacting retail electricity prices in fuel-producing countries," Energy Economics, Elsevier, vol. 138(C).

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