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Decarbonizing Electricity Generation with Intermittent Sources of Energy

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  • Stefan Ambec
  • Claude Crampes

Abstract

We examine policy instruments that aim to decarbonize electricity production by replacing fossil fuel energy with intermittent renewable sources, namely, wind and solar power. We consider a model of investment, production, and storage with two sources of energy: one is clean but intermittent (wind or solar), whereas the other one is reliable but polluting (thermal power). We first determine the first-best energy mix depending on the social cost of polluting emissions. We then show that, to implement the socially efficient energy mix without a carbon tax, feed-in tariffs and renewable portfolio standards must be complemented with a price cap and volume-limited capacity payments.

Suggested Citation

  • Stefan Ambec & Claude Crampes, 2019. "Decarbonizing Electricity Generation with Intermittent Sources of Energy," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(6), pages 1105-1134.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/705536
    DOI: 10.1086/705536
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • 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

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