Second-Best Analysis of European Energy Policy: Is One Bird in the Hand Worth Two in the Bush?

This paper studies policy instruments that correct insufficient learning-by-doing (LbD) and research and development (R&D) of renewable electricity technologies and insufficient investments in energy efficiency (EE) in the presence of carbon pricing. The theoretical model analysis shows how to re-adjust the first-best in second-best situations, in which one of the policy instruments is restricted. Calibrated to the European power sector, the first-best choice of all instruments reduces the climate policy cost by one third. Feed-in tariffs turn out to be good substitutes for LbD, but not for R&D or EE subsidies.


Issue Date:
Feb 08 2016
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/230918
Total Pages:
45
JEL Codes:
C61; O33; Q48; Q54; Q55
Series Statement:
CCSD
106.2015




 Record created 2017-04-01, last modified 2017-08-29

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