Interaction between CO 2 emissions trading and renewable energy subsidies under uncertainty: feed-in tariffs as a safety net against over-allocation - Archive ouverte HAL
Article Dans Une Revue Climate Policy Année : 2019

Interaction between CO 2 emissions trading and renewable energy subsidies under uncertainty: feed-in tariffs as a safety net against over-allocation

Résumé

We study the interactions between a CO2 emissions trading system (ETS) and renewable energy subsidies under uncertainty over electricity demand and energy costs. We develop an analytical model and a numerical model applied to the European Union electricity market in which renewable energy subsidies are justified only by CO2 abatement. We confirm that in this context, when uncertainty is small, renewable energy subsidies are not welfare-improving, but we show that when uncertainty is large enough, these subsidies increase expected welfare because they provide CO2 abatement even in the case of over-allocation, i.e. when the cap is higher than the emissions which would have occurred without the ETS. The source of uncertainty is important when comparing the various types of renewable energy subsidies. Under uncertainty over electricity demand, renewable energy costs or gas prices, a feed-in tariff brings higher expected welfare than a feed-in premium because it provides a higher subsidy when it is actually needed i.e. when the electricity price is low. Under uncertainty over coal prices, the opposite result holds true.
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Dates et versions

hal-04431209 , version 1 (01-02-2024)

Identifiants

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Oskar Lecuyer, Philippe Quirion. Interaction between CO 2 emissions trading and renewable energy subsidies under uncertainty: feed-in tariffs as a safety net against over-allocation. Climate Policy, 2019, 19 (8), pp.1002-1018. ⟨10.1080/14693062.2019.1625743⟩. ⟨hal-04431209⟩
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