Environmental Policy in a Linear City Model of Product Differentiation

This paper analyzes how a tax/subsidy policy affects consumers? behavior when choosing between green (pollution free goods) and conventional products and its effects on welfare when some consumers have strong preferences for green goods. We develop a three stage complete information game, using the Hotelling?s linear city model. We show that when products are identical in all respects except in their environmental properties, a tax/subsidy policy performs better than the case without policy. Our efficiency comparisons suggest that under a setting of horizontal product differentiation a tax/subsidy (either on consumers or polluting ?firms) produces higher social welfare than the absence of policy. Moreover, the proportion of consumers who prefer green products affects the welfare gains from a subsidy or tax policy.Green products, environmental policy, horizontal product differentiation

Promoting renewable electricity generation in imperfect markets: price vs. quantity control

The search for economically effcient policy instruments designed to promote the diffusion of renewable energy technologies in liberalized markets has led to the introduction of quota-based tradable `green' certifcate (TGC) schemes for renewable power. However, there is a debate about the pros and cons of TGC, a quantity control policy, compared to guaranteed feed-in tariffs (FIT), a price control policy. In this paper we contrast these two alternatives in terms of cost effectiveness and social welfare, taking into account that electricity markets are not perfectly competitive.Renewable electricity, Feed-in tariffs, Tradable green certifcates, Quota, Energy policy, Duopoly

Promoting renewable electricity generation in imperfect markets: price vs. quantity policies

The search for economically efficient policy instruments designed to promote the diffusion of renewable energy technologies in liberalized markets has led to the introduction of quota-based tradable ‘green’ certificate (TGC) schemes for renewable electricity. However, there is a debate about the pros and cons of TGC, a quantity control policy, compared to guaranteed feed-in tariffs, a price control policy. In this paper we contrast these two alternatives in terms of social welfare, taking into account that electricity markets are not perfectly competitive, and show that the price control policy dominates the quantity control policy in terms of social welfare.Tradable green certificates, Renewable portfolio standard, Quota target, Feed-in tariff, Cournot duopoly

Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts?

Since the energy crisis in the 1970s and later the growing concern for climate change in the 1990s, policymakers at all levels of government and around the world have been enthusiastically supporting a wide range of incentive mechanisms for electricity from renewable energy sources (RES-E). Motivations range from energy security to environmental preservation to green jobs and innovation, and measures comprise an array of subsidies to mandates to emissions trading. But do these policies work together or at cross-purposes? To evaluate RES-E policies, one must understand how specific policy mechanisms interact with each other and under what conditions multiple policy levers are necessary. In this article, we review the recent environmental economics literature on the effectiveness of RES-E policies and the interactions between them, with a focus on the increasing use of tradable quotas for both emissions reduction and RES-E expansion.environment, technology, externality, policy, climate change, renewable energy

Identification of Options and Policy Instruments for the Internalisation of External Costs of Electricity Generation. Dissemination of External Costs of Electricity Supply Making Electricity External Costs Known to Policy-Makers MAXIMA

In the present paper, after reviewing the results of the ExternE project and its follow-up stages in the estimation of the external costs of electricity production, we look at the policy instruments for the internalisation of such costs. Emphasis is given to subsidies, such as feed-in tariffs, competitive bidding processes and tradable green certificates to stimulate the use of renewables in the production of electricity. When policy-makers are asked to choose the instrument(s) to internalise the externalities in the electricity production, they have to find a solution that gives the best outcome in terms of efficiency, cost minimisation, impact on the job market, security of energy supply, equity of the instrument, technological innovation, certainty of the level of the internalisation, and feasibility. The choice of the instrument will require some trade-offs among these criteria. Conjoint choice analysis can help in investigating how stakeholders and policy makers trade off the criteria when choosing a policy for the internalisation of the externalities. In this paper we present the first results of a questionnaire that employs conjoint choice questions to find out how policy makers and stakeholders of the electricity market trade off some socio-economic aspects in the selection of the policy instruments for the internalisation of the externalities. The results of this first set of interviews will be useful for further research.Policy instruments, ExternE, External costs, Electricity, Conjoint choice analysis

The Liberalisation of the Energy Sector in the European Union

The energy sector covers the coal, oil, gas and electricity sector. The European coal and oil sector have already been liberalised in the past. The current debate concerns mainly the electricity and the gas sector. In this paper we will concentrate on the electricity sector for three reasons. First, the sector is more important in terms of value added, secondly it is considered to be more complex and, finally, the opening of the electricity market precedes that of the gas market. Obviously, this does not mean that the gas sector should not be studied as there are many challenges left. In section II, we discuss the institutional background for the liberalisation. Section III then analyses the British experience. This is of interest because the UK has liberalised its market about 10 years ago and this experience has been the subject of extensive economic research. In the sections IV to VII, we focus on the four main problems in the liberalisation of the European electricity market: the stranded costs issue, the cross-subsidies issue, the pricing of transmission and the regulation of the environment. Finally, section VIII concludes.

The Choice of Environmental Policy Instruments: Energy Efficiency and Redistribution

We analyse optimal environmental policies in a market that is vertically differentiated in terms of the energy efficiency of products. Considering energy taxes, subsidies to firms for investment in more eco-friendly products, and product standards, we are particularly interested in how distributional goals in addition to environmental goals shape the choice of policy instruments. Surprisingly, we find that an industry-friendly government levies an energy tax to supplement a lax product standard, but shies away from subsidies to firms. By contrast, a consumer-friendly government relies heavily on a strict product standard and in addition implements a moderate subsidy to firms, but avoids energy taxes.energy tax, energy efficiency standard, subsidy, vertically differentiated markets, product quality

The Role of Fiscal Instruments in Environmental Policy

Environmental protection is one of Europe's key values. The EU has set clear policy objectives to achieve its environmental goals. The EU has favoured market-based instruments, among which fiscal instruments to tackle the climate change problem. This paper takes a policy-making perspective and provides an overview of key issues on the role of fiscal instruments in energy and environmental policies. It describes fiscal instruments as cost-effective means to promote environmental goals and highlights in which cases taxes and other types of fiscal instruments can usefully complement each other to achieve environmental target.taxation, environmental policy, VAT, fiscal incentives