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The Role of Product Differentiation in the Producer-targeted Promotion of Renewable Energy Technologies

In: Dynamic Systems, Economic Growth, and the Environment

Author

Listed:
  • Ina Meyer

    (Austrian Institute of Economic Research (WIFO))

  • Serguei Kaniovski

    (Austrian Institute of Economic Research (WIFO))

Abstract

Carbon-based technologies continue to dominate the energy sector due to their high productivity and economies of scale. This creates an obligation for governments to provide incentives, such as taxes, subsidies and regulations, to encourage producers to implement cleaner technologies. We study a duopoly in which the incumbent is more efficient, has a higher propensity to invest and has a lower cost of capital. We derive the minimal subsidy (to the entrant) or tax (on the incumbent) sufficient to preserve the entrant in the market in the long run. The rate of the subsidy or tax depends on the underlying demand structure. The more differentiated the products and preferences of the consumers, the lower the subsidy or tax required to safeguard new entrants with innovative clean technologies.

Suggested Citation

  • Ina Meyer & Serguei Kaniovski, 2010. "The Role of Product Differentiation in the Producer-targeted Promotion of Renewable Energy Technologies," Dynamic Modeling and Econometrics in Economics and Finance, in: Jesús Crespo Cuaresma & Tapio Palokangas & Alexander Tarasyev (ed.), Dynamic Systems, Economic Growth, and the Environment, pages 183-195, Springer.
    • Handle: RePEc:spr:dymchp:978-3-642-02132-9_9
    DOI: 10.1007/978-3-642-02132-9_9
    as

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