Abstract
ABSTRACT The promotion of renewable energy sources (RES) by governments is one way of helping countries to meet their energy needs while lowering greenhouse gas emissions. In this paper, we examine the role of energy policy in RES promotion, based on a carbon tax and RES price subsidy, at a time of technological and demand shocks in the European Union (E.U.) 15 countries, the United States (U.S.) and China, focusing on the macroeconomic implications. Using a dynamic stochastic general equilibrium model for RES and fossil fuels, our results suggest that, in the presence of a total factor productivity shock in the fossil fuel sector, such an energy policy can also be a driving force for smoothing the reduction of RES in the energy market (and vice versa). Additionally, we show that the E.U.15 grouping has a comparative advantage in terms of reaching grid parity compared with the other countries we considered which are more fossil fuel dependent.
Highlights
Environmental and energy problems came to the forefront of political debate in the 1980s, with the emergence of global warming, the instability associated with oil markets and the ongoing requirement for huge investments to fund the productivity of fossil fuels reservoirs (Trombetta, 2008)
There are two key results from this paper: First, the main result is that in the presence of a total factor productivity (TFP) shock on fossil fuels, an energy policy involving a carbon tax and a Renewable energy sources (RES) subsidy can smooth out the reduction of RES in the energy market
We analyze the role of energy policy in RES deployment based on a carbon tax and RES price subsidy at a time of technological shocks in the E.U.15 countries, the United
Summary
Environmental and energy problems came to the forefront of political debate in the 1980s, with the emergence of global warming, the instability associated with oil markets and the ongoing requirement for huge investments to fund the productivity of fossil fuels reservoirs (Trombetta, 2008). In the global electricity generation fuel mix, RES account for 23.2% in the European Union (E.U.), in the United States (U.S.) for 13.1% (Energy Information Administration, 2016) and in China for 28% (China Energy Group, 2014). The European Commission’s future policy target envisages a RES target of at least 27% of energy consumption by 2030 for E.U. member countries, which are given the flexibility to set national targets (European Commission, 2014). In the U.S, the future target set by the Clean Power Plan (U.S Environmental Protection Agency, 2016) is 21% by 2030, an important element of that relies on individual states. The group referred to is the E.U. 15
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