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Increasing marginal costs and the efficiency of differentiated feed-in tariffs

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  • Lancker, Kira
  • Quaas, Martin

Abstract

We study optimal subsidies for renewable energy (RE) generation to internalize external benefits from intertemporal learning-by-doing spillovers, taking into account increasing marginal costs at the industry level due to limited availability of sites suitable for RE. We find that the optimal RE subsidy is differentiated according to productivity and derive a condition on production and spillovers under which less efficient, i.e. more costly, technologies should receive higher support, as common in actual policy-making. We show that such a support of technological diversification is optimal if (i) the elasticity of learning by doing is large, which means that technologies rapidly mature with little further scope for learning, and if (ii) productive sites are scarce, which limits future utilization of knowledge.

Suggested Citation

  • Lancker, Kira & Quaas, Martin, 2019. "Increasing marginal costs and the efficiency of differentiated feed-in tariffs," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203641, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203641
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    Cited by:

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    2. Meier, Felix D. & Quaas, Martin F., 2021. "Booming gas – A theory of endogenous technological change in resource extraction," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
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    5. Zhao, Ge & Zhou, P. & Wen, Wen, 2021. "Feed-in tariffs, knowledge stocks and renewable energy technology innovation: The role of local government intervention," Energy Policy, Elsevier, vol. 156(C).
    6. Wang, Yunfei & Li, Jinke & O'Leary, Nigel & Shao, Jing, 2024. "Banding: A game changer in the Renewables Obligation scheme in the United Kingdom," Energy Economics, Elsevier, vol. 130(C).
    7. Li, Jinke & Liu, Guy & Shao, Jing, 2020. "Understanding the ROC transfer payment in the renewable obligation with the recycling mechanism in the United Kingdom," Energy Economics, Elsevier, vol. 87(C).
    8. Meya, Jasper N. & Neetzow, Paul, 2021. "Renewable energy policies in federal government systems," Energy Economics, Elsevier, vol. 101(C).
    9. Jasper Meya & Paul Neetzow, 2019. "Renewable energy policies in federal government systems," Working Papers V-423-19, University of Oldenburg, Department of Economics, revised Jul 2019.
    10. Meißner, Leonie & Peterson, Sonja & Semrau, Finn Ole, 2023. "It's not a sprint, it's a marathon: Reviewing governmental R&D support for environmental innovation," Kiel Working Papers 2254, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    learning spillovers; subsidies; industrial policy; renewable energy; feed-in-tariffs; differentiation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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