Renewable Energy Subsidies Research Articles

Dynamic Economic Analysis of Subsidies for New and Renewable Energy in South Korea

Many countries are increasing the supply of new and renewable energy to reduce greenhouse gas emissions and promote energy security. Subsidies for new and renewable energy are considered a useful means to increase supply, although a close assessment is needed of whether the subsidies improve the economic feasibility of new and renewable energy. Thus, this study conducted an economic analysis on South Korea’s housing support program for new and renewable energy sources from the perspectives of the government and consumers. The results showed that, in 2014, the use of solar photovoltaics (PV) led to constant improvements in economic feasibility, which benefited both the government and consumers, but fuel cell failed to do so from both perspectives. Solar thermal and geothermal heat showed improved economic feasibility throughout the program for consumers. In particular, solar PV reported high economic feasibility in 2014 and 2015 for consumers, indicating that a significant subsidy amount was provided for solar PV facilities. This also confirmed the possibility of achieving economic feasibility for other energy sources within a limited budget by distributing subsidies across the various sources.

‘Fossil Fueling the Apocalypse’: Australian Coal Subsidies and the Agreement on Subsidies and Countervailing Measures

AbstractGlobal fossil fuel subsidies are substantial and contribute to climate change. They also undermine the ambitions of the Paris Agreement. However, under the WTO, the international community's foremost economic institution, it is renewable energy subsidies, not fossil fuel subsidies, that have been subjected to litigation. To date, no fossil fuel subsidy has ever been brought before the WTO's Dispute Settlement Body (DSB). This paper makes a unique contribution to the literature on energy subsidies by applying the WTO covered Agreement on Subsidies and Countervailing Measures (1994) (SCM Agreement) to a specific government measure designed to support the coal export industry in Australia: namely, the proposed concessional loan for the construction of a rail line between the Carmichael coal mine and Abbot Point coal port by the Northern Australia Infrastructure Facility (NAIF). In finding that this measure is in breach of the SCM Agreement, this paper foreshadows future litigation and provides guidance to non-government organizations (NGOs) seeking to identify other unlawful fossil fuel subsidies.

Analyzing the carbon mitigation potential of tradable green certificates based on a TGC-FFSRO model: A case study in the Beijing-Tianjin-Hebei region, China

Contradictions of increasing carbon mitigation pressure and electricity demand have been aggravated significantly. A heavy emphasis is placed on analyzing the carbon mitigation potential of electric energy systems via tradable green certificates (TGC). This study proposes a tradable green certificate (TGC)–fractional fuzzy stochastic robust optimization (FFSRO) model through integrating fuzzy possibilistic, two-stage stochastic and stochastic robust programming techniques into a linear fractional programming framework. The framework can address uncertainties expressed as stochastic and fuzzy sets, and effectively deal with issues of multi-objective tradeoffs between the economy and environment. The proposed model is applied to the major economic center of China, the Beijing-Tianjin-Hebei region. The generated results of proposed model indicate that a TGC mechanism is a cost-effective pathway to cope with carbon reduction and support the sustainable development pathway of electric energy systems. In detail, it can: (i) effectively promote renewable power development and reduce fossil fuel use; (ii) lead to higher CO2 mitigation potential than non-TGC mechanism; and (iii) greatly alleviate financial pressure on the government to provide renewable energy subsidies. The TGC-FFSRO model can provide a scientific basis for making related management decisions of electric energy systems.

Not carbon neutral: Assessing the net emissions impact of residues burned for bioenergy

Climate mitigation requires emissions to peak then decline within two decades, but many mitigation models include 100 EJ or more of bioenergy, ignoring emissions from biomass oxidation. Treatment of bioenergy as ‘low carbon’ or carbon neutral often assumes fuels are agricultural or forestry residues that will decompose and emit CO2 if not burned for energy. However, for ‘low carbon’ assumptions about residues to be reasonable, two conditions must be met: biomass must genuinely be material left over from some other process; and cumulative net emissions, the additional CO2 emitted by burning biomass compared to its alternative fate, must be low or negligible in a timeframe meaningful for climate mitigation. This study assesses biomass use and net emissions from the US bioenergy and wood pellet manufacturing sectors. It defines the ratio of cumulative net emissions to combustion, manufacturing and transport emissions as the net emissions impact (NEI), and evaluates the NEI at year 10 and beyond for a variety of scenarios. The analysis indicates the US industrial bioenergy sector mostly burns black liquor and has an NEI of 20% at year 10, while the NEI for plants burning forest residues ranges from 41%–95%. Wood pellets have a NEI of 55%–79% at year 10, with net CO2 emissions of 14–20 tonnes for every tonne of pellets; by year 40, the NEI is 26%–54%. Net emissions may be ten times higher at year 40 if whole trees are harvested for feedstock. Projected global pellet use would generate around 1% of world bioenergy with cumulative net emissions of 2 Gt of CO2 by 2050. Using the NEI to weight biogenic CO2 for inclusion in carbon trading programs and to qualify bioenergy for renewable energy subsidies would reduce emissions more effectively than the current assumption of carbon neutrality.

Are renewable energy subsidies in Nepal reaching the poor?

The Government of Nepal has been providing subsidies to promote biogas technology since the 1970s and Solar Home Systems (SHS) since the 1990s. This study uses nationally representative survey data to examine the extent to which these subsidies benefitted the rural poor. We find that only 5% of households who are eligible for a biogas subsidy have adopted biogas; and only 2% of biogas adopters are below the poverty line, as compared to a poverty rate of 19% in the country. For SHS, 27% of the households eligible for subsidy have adopted the technology, and 25% of the adopters are below the poverty line. The SHS subsidy program is much more accessible to the poor as compared to the biogas subsidy program for two main reasons. First, Solar Home Systems are much cheaper than biogas plants, and so are more accessible to the poor after the subsidy, and second, the SHS subsidy is geographically targeted toward poor areas, while the biogas subsidy is not.

The Economics of Renewable Energy Support

This paper uses theoretical and numerical economic equilibrium models to examine optimal renewable energy (RE) support policies for wind and solar resources in the presence of a carbon externality associated with the use of fossil fuels. We emphasize three main issues for policy design: the heterogeneity of intermittent natural resources, budget-neutral financing rules, and incentives for carbon mitigation. We find that differentiated subsidies for wind and solar, while being optimal, only yield negligible efficiency gains. Policies with smart financing of RE subsidies which either relax budget neutrality or use “polluter-pays-the-price” financing in the context of budget-neutral schemes can, however, approximate socially optimal outcomes. Our analysis suggests that optimally designed RE support policies do not necessarily have to be viewed as a costly second-best option when carbon pricing is unavailable.

SHELTERING GOVERNMENT SUPPORT TO ‘GREEN’ ELECTRICITY: THE EUROPEAN UNION AND THE WORLD TRADE ORGANIZATION

AbstractSince theCanada – Renewable Energy (2013)dispute at the World Trade Organization (WTO), the WTO Agreement on Subsidies and Countervailing Measures (SCM) has been the focal point of academic debate on the trade-environment interface, with a growing consensus that WTO subsidy rules need to be revisited with a view to securing ‘policy space’ for government support for renewable energy. This article explores whether, as suggested by some scholars, the European Union (EU)’s system of justifications for renewable energy aid could serve as a source of inspiration for the WTO. While this proposition may appear attractive at first sight, it is hardly conceivable, or even desirable, that the EU's approach to sheltering government support for renewable energy could be transposed to the WTO. This is because the two systems of subsidy control are fundamentally different in both substantive and procedural terms and, importantly, these differences reflect distinct objectives and political/institutional contexts. Nonetheless, this comparative analysis sheds light on where the key challenges lie for the WTO in ensuring that international trade rules and climate change mitigation objectives are mutually supportive. It is argued that the case for reviewing the SCM Agreement cannot be made by simply forging parallels with the EU's regulatory model, but needs to be carefully construed on the basis of a proper understanding of whether and how green policy space is actually constrained under the current WTO subsidy and trade remedy rules. However, this requires better information on existing WTO members’ practice in relation to renewable energy subsidies, as well as on their environmental effectiveness and possible trade-distortive impact. In this sense, the most valuable lesson that the WTO can draw from the EU's regulatory experience is the imperative of improving the transparency and knowledge-enhancing elements of its subsidy control system.

Strategic Investment Decisions Under the Nuclear Power Debate in Belgium

In view of the current nuclear power debate in Belgium, we analyze how uncertainty about a nuclear phase-out, coupled with the implementation of renewable energy subsidies and nuclear taxes, affects investment capacity and productivity decisions by Belgian electricity suppliers. To achieve this goal, considering the key characteristics of the Belgian market, we build a Stackelberg closed-loop (two-stage) equilibrium model in which investment decisions are made in a first stage under uncertainty regarding a nuclear phase-out, and productivity decisions are subsequently made in a second stage in a certainty environment. Our analysis indicates that, regardless of subsidies, an increase in the probability of nuclear license extension results in lower levels of investment - primarily in renewable energy - lower total production and a higher electricity price. We also show that the implementation of renewable energy subsidies reduces the effect of an increase in probability of nuclear license extension on producer’s decisions regarding expanded capacity and on total profits in the market.

Effects of consumer subsidies for renewable energy on industry growth and social welfare: The case of solar photovoltaic systems in Japan

The primary goal of policies to promote renewable energy is to correct for the unpriced pollution externalities from burning fossil fuels. It is, however, difficult to assess whether and to what extent these policies enhance industry growth and economic welfare, especially when no comparable data on a proper control group are available. This paper provides an empirical framework to tackle such a problem with a particular focus on the use of consumer subsidies for installing residential solar photovoltaic systems in Japan. The presented estimates show elastic demand, and small learning by doing along with modest learning spillovers in production. Our simulations show that, while the subsidies are an effective instrument to encourage the greater use of solar panels, they would exacerbate social surplus unless the value of mitigating CO2 emission is well above the ongoing market price.

Climate change and trade: challenges and lingering questions on the relationship between renewable energy subsidies and WTO disciplines

The worsening of global warming has prompted an ever-increasing number of States to enact climate change mitigation policies. These often include renewable energy subsidies and local content requirements. Yet, these policies do not always sit comfortably with WTO disciplines. This paper investigates how the WTO case law and legal scholarship have dealt with this issue. Bearing this in mind, it seeks to contribute to this debate by putting forward a solution to reconcile renewable energy subsidies and WTO obligations.

‘Them and us’: Regional-national power-plays in the German energy transformation: A case study in Lower Franconia

This paper reports a regional case study of key issues for Germany's energy transformation (Energiewende) in and around Schweinfurt County (Landkreis Schweinfurt) in the geographical region of Unterfranken (Lower Franconia). Document research and semi-structured interviews with strategically selected local persons were conducted, supplemented by existing local knowledge. Citizen cooperatives in Lower Franconia have built numerous wind farms, were forerunners in commercial photovoltaics and provided political impetus for Germany's renewable energy subsidy law. But locals report disillusionment with recent neoliberal trends that lead to well-financed absentee investors buying up renewable energy siting rights, manoeuvring and pricing locals out of business, while government demands local access for an electricity superhighway that will serve other regions. The paper investigates local actors’ perceptions of power plays between themselves and outside investors and policymakers, using Geels’ schema of instrumental, material, institutional and discursive power. It finds locals outmanoeuvred and losing control, to outside interests, of what has been a significant contribution to the Energiewende, while their wider local economy and solidarity are being undermined. The paper recommends policymakers avoid framing regional groups as problems to be solved and instead act to support and harness their unique social resources for a more socially acceptable Energiewende.

Climate policies under climate model uncertainty: Max-min and min-max regret

Temperature responses and optimal climate policies depend crucially on the choice of a particular climate model. To illustrate, the temperature responses to given emission reduction paths implied by the climate modules of the well-known integrated assessments models DICE, FUND and PAGE are described and compared. A dummy temperature module based on the climate denialists' view is added. Using a simple welfare-maximising growth model of the global economy, the sensitivity of the optimal carbon price, renewable energy subsidy and energy transition to each of these climate models is discussed. The paper then derives max-min, max-max and min-max regret policies to deal with this particular form of climate (model) uncertainty and with climate scepticism. The max-min or min-max regret climate policies rely on a non-sceptic view of global warming and lead to a substantial and moderate amount of caution, respectively. The max-max leads to no climate policies in line with the view of climate sceptics.

How Can China Achieve Its Nationally Determined Contribution Targets Combining Emissions Trading Scheme and Renewable Energy Policies?

The adoption of emissions trading scheme (ETS) and renewable energy sources (RES) policies have been essential to achieving China’s national targets for reducing CO2 emissions and developing non-fossil energy sources. The combination of ETS and RES policies raises an important issue: What is the effect of combining ETS and RES policies on the existing carbon market and economy? Focusing on the design of the nationwide carbon market, this paper uses a multi-regional computable general equilibrium (CGE) model to analyze the economic impacts of ETS policy when combined with RES policies in China. The results show that China’s annual ETS emissions cap should decrease by 0.3% to maintain stable CO2 prices and achieve the targets in China’s intended nationally determined contribution (INDC). It is estimated that the CO2 price on the nationwide carbon market would decrease by 11–64% when the renewable energy subsidy rate increases from 20 to 100%, and the total trading volume would decrease by 3–25%. The results also show that the combination of an ETS and a feed-in tariff (FIT) results in greater GDP cost and welfare loss in all Chinese regions, increasing the total social cost by 0.01–0.06%.

No iceberg in sight: on the absence of WTO disputes challenging fossil fuel subsidies

The empirical record of dispute settlement cases under World Trade Organization (WTO) rules on energy subsidies consists only of cases against renewable energy (RE) subsidies, whereas WTO members have not challenged others’ much larger and environmentally harmful fossil fuel subsidies. Yet, the WTO agreement on subsidies and countervailing measures would at first sight seem to create possibilities to forestall environmentally harmful subsidization. In this article, we assess possible explanations for the skewed distribution of energy subsidies dispute settlement complaints at the WTO. We argue that differences in legally relevant characteristics of fossil fuel subsidies, on the one hand, and RE subsidies, on the other hand, largely explain this observation. In the case of RE subsidies, in particular, the disputes filed to date have targeted a much narrower set of measures than the whole range of RE subsidies currently in place, namely those incorporating a local content requirement component. Although this finding is not new, we have probed into this question more systematically, both by widening the scope of the empirical analysis from actual to potential WTO disputes on energy-related policies the European Union and the USA might have initiated, and by systematically assessing the plausibility of alternative explanations.

Understanding How Generation Flexibility and Renewable Energy Affect Power Market Competition

We study supply function competition among conventional power generators with different levels of flexibility and the impact of intermittent renewable power generation on the competition. Inflexible generators commit production before uncertainties are realized, whereas flexible generators can adjust their production after uncertainties are realized. Both types of generators compete in an electricity market by submitting supply functions to a system operator, who solves a two-stage stochastic program to determine the production level for each generator and the corresponding market prices. We aim to gain an understanding of how conventional generators’ (in)flexibility and renewable energy’s intermittency affect the supply function competition and the market price. We find that the classic supply function equilibrium model overestimates the intensity of the market competition, and even more so when more intermittent generation is introduced into the system. The policy of economically curtailing intermittent generation intensifies the market competition, reduces price volatility, and improves the system’s overall efficiency. Furthermore, these benefits of economic curtailment are most significant when the production-based subsidies for renewable energy are absent.

The Policy Impact of Renewable Energy Subsidies on Solar PV: The Case of Renewable Portfolio Standard in Korea

The Policy Impact of Renewable Energy Subsidies on Solar PV: The Case of Renewable Portfolio Standard in Korea

The unstudied barriers to widespread renewable energy deployment: Fossil fuel price responses

Renewable energy policy focuses on supporting the deployment of renewable power generators so as to reduce their costs through scale economies and technological learning. It is expected that, once cost parity with fossil fuel generation is achieved, a transition towards renewable power should continue without the need for further renewable energy subsidies. However, this reasoning implicitly assumes that the cost of fossil fuel power generation does not respond to the large scale penetration of renewable power. In this paper we build a standard economic framework to test the validity of this assumption, particularly in the case of coal and gas fired power generation. We find that it is likely that the cost of fossil fuel power generation will respond to the large scale penetration of renewables, thus making the renewable energy transition slower or more costly than anticipated. More analysis is needed in order to be able to quantify this effect, the occurrence of which should be considered in the renewable energy discourse.

Do renewable energy policies reduce carbon emissions? On caps and inter-industry leakage

In a parsimonious two-sector general equilibrium model, we challenge the widely-held tenet that within a cap-and-trade system renewable energy policies have no effect on carbon emissions. If the cap does not capture all sectors, we demonstrate that variations of a renewable energy subsidy change aggregate carbon emissions through an inter-industry leakage effect. We decompose this effect into intuitively intelligible components that depend in natural ways on measurable elasticity parameters. Raising the subsidy always reduces emissions if funded by a lump-sum tax, reinforcing recent findings that tightening environmental regulation can cause negative leakage. However, if the subsidy is funded by a levy on electricity, it can increase emissions. These results provide a valuable basis for an informed design of renewable energy policies and an accurate assessment of their effectiveness. We highlight how a state-of-the-art statistic used by governments to gauge such effectiveness, “virtual emission reductions”, is biased, because inter-industrial leakage effects are not captured.

Climate Policies Under Climate Model Uncertainty: Max-Min and Min-Max Regret

Temperature responses and optimal climate policies depend crucially on the choice of a particular climate model. To illustrate, the temperature responses to given emission reduction paths implied by the climate modules of the well-known integrated assessments models DICE, FUND and PAGE are described and compared. A dummy temperature module based on the climate denialists’ view is added. Using a simple welfare-maximising growth model of the global economy, the sensitivity of the optimal carbon price, renewable energy subsidy and energy transition to each of these climate models is discussed. The paper then derives max-min, max-max and min-max regret policies to deal with this particular form of climate (model) uncertainty and with climate scepticism. The max-min or min-max regret climate policies rely on a non-sceptic view of global warming and lead to a substantial and moderate amount of caution, respectively. The max-max leads to no climate policies in line with the view of climate sceptics.

Do Fossil-Fuel Taxes Promote Innovation in Renewable Electricity Generation?

We evaluate the role of a fossil fuel tax and research subsidy in directing innovation from fossil fuel toward renewable energy technologies in the electricity sector. Using a global firm-level electricity patent database from 1978 to 2011, we find that the impact of fossil fuel taxes on renewable energy innovation varies with the type of fossil fuel. Specifically, a tax on coal reduces innovation in both fossil fuel and renewable energy technologies while a tax on natural gas has no statistically significant impact on renewable energy innovation. The reason is that easily dispatchable energy sources like coal-fired power plants need to complement renewable energy Technologies in the grid because renewables generate electricity intermittently. Our results suggest that a tax on natural gas, combined with research subsidies for renewable energy, may effectively shift innovation in the electricity sector towards renewable energy. In contrast, coal taxation or a carbon tax that increases coal prices has unintended negative consequences for renewable energy innovation.