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The Efficiency and Sectoral Distributional Impacts of Large-Scale Renewable Energy Policies

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  • Mar Reguant

Abstract

Renewable energy policies have grown in popularity. Given that renewable energy costs are mostly nonmarginal, due to the large presence of fixed costs, there are many different ways to implement these policies in both the environmental design and retail pricing margins. I show that the efficiency and distributional implications of large-scale policies crucially depend not only on the design of wholesale policies to incentivize renewables but also on how the costs of such policies are passed-through to consumers. Using data from the California electricity market, I develop a model to illustrate the interaction between large-scale renewable energy policies (carbon taxes, feed-in tariffs, and renewable portfolio standards) and their pricing to final consumers under alternative retail pricing schemes (no pass-through, marginal fees, fixed flat tariffs, and Ramsey pricing). I focus on the trade-off between charging residential versus industrial consumers to highlight tensions between efficiency, distributional, and environmental goals.

Suggested Citation

  • Mar Reguant, 2019. "The Efficiency and Sectoral Distributional Impacts of Large-Scale Renewable Energy Policies," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(S1), pages 129-168.
  • Handle: RePEc:ucp:jaerec:doi:10.1086/701190
    DOI: 10.1086/701190
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    Cited by:

    1. Don Fullerton & Erich Muehlegger, 2019. "Who Bears the Economic Burdens of Environmental Regulations?," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 13(1), pages 62-82.
    2. Fabra, Natalia & , Imelda, 2020. "Market Power and Price Exposure: Learning from Changes in Renewables' Regulation," CEPR Discussion Papers 14729, C.E.P.R. Discussion Papers.
    3. Doda, Baran & Fankhauser, Sam, 2020. "Climate policy and power producers: The distribution of pain and gain," Energy Policy, Elsevier, vol. 138(C).
    4. Yang, Yuting, 2022. "Electricity interconnection with intermittent renewables," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).
    5. Stefan Lamp & Mario Samano, 2023. "(Mis)allocation of Renewable Energy Sources," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(1), pages 195-229.
    6. Isis Durrmeyer, 2021. "Winners and Losers: The Distributional Effects of the French Feebate on the Automobile Market," Post-Print hal-03514846, HAL.
    7. Bialek, Sylwia & Ünel, Burçin, 2022. "Efficiency in wholesale electricity markets: On the role of externalities and subsidies," Energy Economics, Elsevier, vol. 109(C).
    8. Filippo Maria D’Arcangelo & Ilai Levin & Alessia Pagani & Mauro Pisu & Åsa Johansson, 2022. "A framework to decarbonise the economy," OECD Economic Policy Papers 31, OECD Publishing.
    9. Patrick Bigler & Doina Maria Radulescu, 2022. "Environmental, Redistributive and Revenue Effects of Policies Promoting Fuel Efficient and Electric Vehicles," CESifo Working Paper Series 9645, CESifo.
    10. Andreas Gerster & Stefan Lamp, 2024. "Energy Tax Exemptions and Industrial Production," The Economic Journal, Royal Economic Society, vol. 134(663), pages 2803-2834.
    11. 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).
    12. Waidelich, Paul & Steffen, Bjarne, 2024. "Renewable energy financing by state investment banks: Evidence from OECD countries," Energy Economics, Elsevier, vol. 132(C).
    13. Jean-Pierre Amigues & Ujjayant Chakravorty & Gilles Lafforgue & Michel Moreaux, 2022. "Comparing Volume and Blend Renewable Energy Mandates under a Carbon Budget," Annals of Economics and Statistics, GENES, issue 147, pages 51-78.
    14. Kathrine von Graevenitz & Elisa Rottner, 2024. "Climate Policies and Electricity Prices: To Abate or to Generate?," CRC TR 224 Discussion Paper Series crctr224_2024_504, University of Bonn and University of Mannheim, Germany.
    15. Robert W. Hahn & Robert D. Metcalfe, 2021. "Efficiency and Equity Impacts of Energy Subsidies," American Economic Review, American Economic Association, vol. 111(5), pages 1658-1688, May.
    16. Abrell, Jan & Rausch, Sebastian & Streitberger, Clemens, 2019. "The economics of renewable energy support," Journal of Public Economics, Elsevier, vol. 176(C), pages 94-117.
    17. Yang, Yuting, 2020. "Electricity Interconnection with Intermittent Renewables," TSE Working Papers 20-1075, Toulouse School of Economics (TSE).
    18. Bohland, Moritz & Schwenen, Sebastian, 2022. "Renewable support and strategic pricing in electricity markets," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    19. Andor, Mark A. & Lange, Andreas & Sommer, Stephan, 2022. "Fairness and the support of redistributive environmental policies," Journal of Environmental Economics and Management, Elsevier, vol. 114(C).
    20. Petersen, Claire & Reguant, Mar & Segura, Lola, 2024. "Measuring the impact of wind power and intermittency," Energy Economics, Elsevier, vol. 129(C).
    21. Jacobsen, Grant D., 2024. "Race, ethnicity, and the distribution of energy efficiency incentives," Energy Economics, Elsevier, vol. 130(C).
    22. Pébereau, Charles & Remmy, Kevin, 2023. "Barriers to real-time electricity pricing: Evidence from New Zealand," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    23. Percebois, Jacques & Pommeret, Stanislas, 2021. "Efficiency and dependence in the European electricity transition," Energy Policy, Elsevier, vol. 154(C).

    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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