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Climate policy and power producers: the distribution of pain and gain

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  • Doda, Baran
  • Fankhauser, Samuel

Abstract

Climate policies do not affect all power producers equally. In this paper, we evaluate the supply-side distributional consequences of emissions reduction policies using a simple and novel partial equilibrium model where production takes place in technology-specific sites. In a quantitative application hydro, wind and solar firms generate power combining capital and sites which differ in productivity. In contrast, the productivity levels of coal, gas and nuclear technologies are constant across sites. We parameterise the model to analyse the effects of stylised tax and subsidy schemes. Carbon pricing outperforms all other instruments and, crucially, leads to more equitable outcomes on the supply side. Technology-specific and uniform subsidies to carbon-free producers result in a greater welfare cost and their supply- side distributional impacts depend on how they are financed. Power consumption taxes have exceptionally high welfare costs and should not be the instrument of choice to reduce emissions or to finance subsidies aiming to reduce emissions.

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  • Doda, Baran & Fankhauser, Samuel, 2020. "Climate policy and power producers: the distribution of pain and gain," LSE Research Online Documents on Economics 102960, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:102960
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    More about this item

    Keywords

    carbon pricing; renewable subsidies; supply-side distributional implications; climate policy; UKRI block grant;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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